The Evolving Face of Finance

At a recent industry roundtable hosted by Eversheds Sutherland, attended by private credit funds, banks, investors and other market participants, discussions focused less on whether the asset class will continue to grow and more on how that growth is changing. 

The themes discussed ranged from changing capital flows and the increasing role of local lenders to rising competition and credit quality. This client briefing considers some of the trends shaping the next phase of the market's evolution.

Against that backdrop, after a period characterised by strong inflows of international capital and increasing deal flow, there are early signs of a more measured approach to capital deployment into the region by some international private credit providers. This reflects a greater focus on credit quality and pricing.

Deal activity continues. Transactions, such as the private credit facility extended to GymNation by HPS Investment Partners (part of BlackRock), demonstrate that international lenders remain willing to deploy capital for high-quality credits notwithstanding a more challenging backdrop. These types of deals illustrate that foreign private credit is still available, yet is becoming increasingly selective.

A Window for Local Credit Providers

The increasing selectivity of international private credit providers is creating opportunities for regional credit managers. Historically, international managers have been able to move quickly and underwrite large ticket transactions, often in excess of USD 100 million. Regional managers, meanwhile, have frequently participated alongside other investors through club and co-investment structures.

Recent market trends suggest that regional managers are playing a larger role in transactions that have historically been dominated by international capital. Greater access to deal pipelines, combined with growing pools of regional capital and increasing execution experience, is enabling local funds to compete across a broader range of opportunities. While larger transactions may still require club arrangements and co-investment structures, regional managers are becoming increasingly competitive on both structure and pricing.

Yaser Moustafa, Head of Emerging Market Private Investments at Janus Henderson Investors, observed: “The regional private credit market, set up of expansionary government policies alongside USD-pegged currencies, constrained bank balance sheets and limited private capital competition, make the GCC, and the UAE and KSA specifically, amongst the most attractive middle-market private credit markets in the world.”

Continued Outbound Deployment 

Another notable theme discussed by market participants was the continued deployment of GCC capital outside the region. The United Kingdom and Europe remain important markets for many regional investors and credit managers, reflecting longstanding investment links between the GCC and those jurisdictions.

This reflects both a desire for diversification and growing confidence in the ability of regional managers to participate in cross border transactions. Regional managers are also taking a more active role in international private credit opportunities, both alongside international capital providers and through their own investment platforms.

Macro Pressures: Inflation and Cost of Capital 

The macroeconomic backdrop is also becoming more challenging. Recent periods of market volatility and supply side disruptions have contributed to increasing inflationary pressures globally, with higher energy prices feeding into broader price levels.

For borrowers in the UAE and Saudi Arabia, this can translate into higher financing costs and greater scrutiny of credit quality and transaction structures. For lenders, higher interest rates continue to support the attractiveness of private credit as an asset class, given its typically floating rate nature and the potential for enhanced yields.

Nathan Kwon, Partner and Head of Credit at Shorooq, observed: “It’s worth distinguishing between origination and collections when assessing lenders’ response to the recent market downturn. Lower origination but steady or even improved collection suggests a deliberate tightening of lending criteria and underwriting thresholds. For sophisticated managers, the pullback during Q2 would have been the result of a conscious design rather than an unavoidable outcome,” speaking on the importance of credit selection and lender action.

Infrastructure and Logistics: A Demand Story

In Saudi Arabia, large-scale infrastructure development continues to underpin demand for alternative financing. The expansion of logistics networks, supported by major transport projects and substantial investment in infrastructure, will require significant amounts of capital over the coming years.

Private credit is well positioned to support these developments, particularly where flexible, asset-backed or structured financing solutions are required. As the scale and complexity of projects continue to increase, private capital is expected to play a significant role alongside traditional bank financing. This is consistent with broader trends in the Kingdom, where private capital is increasingly seen as a complement to bank financing in supporting Vision 2030 projects.

Broadening Structuring Hubs

The structuring of private credit transactions is becoming more international. Jurisdictions such as the Dubai International Financial Centre (“DIFC”) and Abu Dhabi Global Market (“ADGM”) continue to serve as regional hubs. There is also growing use of offshore structuring centres, including Ireland, reflecting investor familiarity, regulatory considerations and fund structuring efficiencies.

This reflects the growing integration of the GCC private credit market with international capital and fund structures.

Funds Finance: A Growing Sector

Fund finance is also emerging as a distinct growth area, reflecting the growing number of funds establishing a presence in hubs such as the DIFC and ADGM. Subscription line facilities remain the most established product in the market, although there are early signs of diversification, with UAE institutions playing an increasingly prominent role in the rapid global growth of net asset value (NAV) facilities.

A notable feature of the UAE market is the need to accommodate Shari’ah-compliant structures, such as commodity murabaha and wakala arrangements, alongside conventional facilities. This adds a layer of structuring complexity, however it is expected to support continued growth in the segment as regional capital increasingly seeks Shari’ah-compliant financing solutions.

Credit Discipline and Active Lender Engagement

As the market continues to evolve, lenders are placing greater emphasis on credit selection, monitoring and downside protection. This is particularly relevant in sectors with longer development cycles or greater sensitivity to financing costs, including real estate development and hospitality. 

In this context, private credit lenders are likely to adopt a more proactive approach to protecting their positions. Private credit funds typically place significant emphasis on ongoing credit monitoring, covenant compliance and active portfolio management. Where challenges arise, lenders are often prepared to engage early to preserve value and support constructive discussions with borrowers.

As private credit transactions move through their full lifecycle, including restructurings and enforcement scenarios where necessary, market participants are increasingly seeing GCC financing and security structures tested in practice. This is a natural and positive development. A market's long-term credibility is measured not only by its ability to deploy capital, but also by the effectiveness of its legal and enforcement frameworks when transactions encounter difficulty.

Concluding Remarks

While international private credit providers are becoming increasingly selective in their deployment strategies, underlying demand for alternative financing across the UAE and Saudi Arabia remains strong. At the same time, regional credit managers are playing a more prominent role in the market, both domestically and internationally.

The discussions at our recent roundtable reinforced a common theme: the question is no longer whether private credit will continue to grow in the region, but how that growth will evolve. Greater selectivity, increasing local participation, active credit management, the continued development of market infrastructure and the diversification of fund finance products are likely to define the next phase of the market's development.

Our team continues to monitor these developments and would be pleased to discuss their implications for your business.