In rare foray, Saudi PIF invests in NBK Capital Partners’ sharia credit fund

Saudi Arabia’s sovereign wealth fund has become an anchor investor in a new $300 million sharia credit fund launched by NBK Capital Partners (NBKCP) that will provide capital to mid-market companies in the Middle East, NBKCP said on Tuesday.

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It did not disclose the stake taken by Public Investment Fund (PIF), which manages $400 billion in assets, but NBKCP said it was a nine-digit figure, meaning at least a third of the targeted $300 million. Fundraising closes next year.

PIF, which largely invests in equities and infrastructure, is making a rare foray into the debt market.

Read more: Saudi Arabia’s PIF to invest 3 trillion riyals over next 10 years: Crown Prince

“We can touch parts of the economy that they (PIF) can’t touch as efficiently, so we end up being sort of this force multiplier for them in terms of getting capital into pockets efficiently,” NBKCP Senior Managing Director Yaser Moustafa told Reuters.

European and US institutional investors were also investing in the fund, which expects to make 10 to 12 investments of $15 million to $50 million over its eight-year life.

NBKCP, owned by Kuwait’s biggest lender, has had two previous private credit funds, including a $157 million fund started in 2007 that lent to eight companies and from which it has exited.

NBKCP’s second credit fund closed in 2017 and is worth $160 million, the vast majority of which has been invested.

NBKCP’s credit and equity funds have invested in 35 companies, including 17 consecutive profitable exits.

NBKCP generally expects returns in the mid-teens from its fund investments, Moustafa said, adding he expected similar returns from the sharia fund.

“We’re looking at anywhere from 8-10 percent in that cash coupon,” he said.

After a year or two, the principal starts to amortize and, generally, the borrower agrees to return a certain percentage on the funding when it matures, usually in four or five years.

Private credit funding is more expensive than bank loans, but borrowers might not have access to bank credit.

NBKCP’s funds have invested in education, food and beverages, healthcare and logistics. They generally invest in companies with EBITDA between $4 million and $100 million.

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