Private credit fund looks for $250m from Gulf investors

Ruya Partners

• Ruya Partners initially raised $150m
• Designed to lend to SMEs
• Sovereign funds climbing on board

Ruya Partners, which describes itself as the Gulf’s first partner-owned private credit provider, aims to raise $250 million from investors by mid to late 2024, senior executive Omar Al Yawer has revealed to AGBI. 

The Abu Dhabi business says regional sovereign wealth funds have become more amenable to investing in the private credit sector.

Private credit is non-bank lending. It has soared in popularity since the global financial crisis.

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It topped $2.1 trillion in assets and committed money in 2023, according to a report in April by the International Monetary Fund, which warned that the sector could heighten financial vulnerabilities “given its limited oversight”.

In the GCC, only 2 percent of bank lending is to small and medium-sized businesses, the World Bank estimates. Ruya Partners was founded in 2020 to help ease this shortfall, with its Ruya Private Capital fund lending directly to mid-sized companies.

At the fund’s first close in May 2023, it had raised $150 million from investors. Its second close will be in the third quarter of 2024, by which time its funding should swell to at least $250 million, Al Yawer said.

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Last October, the government-owned Saudi Venture Capital invested $10 million in the fund.

Its anchor investor – an institutional buyer that buys significant number of shares in a company before it goes public, encouraging others to invest – is Abu Dhabi Catalyst Partners, a joint venture by the Abu Dhabi government-owned Mubadala Investment Co and US investment company Alpha Wave Global.

Sovereign wealth funds “never really used to back regional managers like us,” said Al Yawer, whose company is licensed by Abu Dhabi Global Market. However, he said, there has been a change in the way sovereign funds think of the opportunity in the Middle East.

Ruya is the region’s first partner-owned private credit firm, he said. Previously, general partners, the owners of such companies, were typically family groups or banks. Al Yawer and Ruya’s two co-founders have invested their own money in the fund.

Together, they identify potential lending opportunities, targeting companies with a minimum annual EBITDA of $5 million, primarily in Saudi Arabia and the UAE.

“We’re sector agnostic. The market isn’t deep enough to be segmenting,” Al Yawer said.

Most deals will be providing growth capital to companies, while some will be related to situations such as spin-offs and restructurings, for example, and debt refinancing.

In a debt refinancing, a company will pay off its other debts so that Ruya is typically the only creditor.

Ruya is a senior, secured lender to its borrowers. Unlike private credit providers in Europe and the United States, Ruya does not itself borrow to part-fund its lending.

The firm provides annual returns of 15 to 18 percent. Of this, up to four-fifths comes from interest payments from borrowers. The remainder is derived from upfront fees, warrants and so-called PIK (pay in kind) bonds, which pay interest in further bonds.

A warrant gives the right, but not an obligation, to buy or sell a security, usually company equity, at a certain price before a deadline.

As an extra precaution, Ruya ensures the entities to which it lends are legally based in financial jurisdictions that follow English law, such as ADGM or Dubai International Finance Centre.

The fund’s investments are a “senior secured structure”, but provide “mezzanine level” returns using zero leverage, Al Yawer.

Mezzanine financing is a mix of debt and equity that pays annual returns of 12 to 20 percent.

In Ruya’s first three deals, with the US streaming platform StarzPlay, the Saudi Arabian temporary power provider Energia and the UAE fitness company GymNation, it lent a combined total of about $70 million. In May, StarzPlay repaid its loan in full.

Ruya will typically lend $10 million to $25 million. For larger amounts, its fund investors can co-invest directly to provide additional borrowing.

Historically, medium-sized regional companies have tended to borrow from banks, if possible, or sold stakes in the business to raise funds.

“Sometimes they haven’t done the calculation that equity is actually more expensive,” Al Yawer said.

“At face value, you may think it’s a lot cheaper, but you run the numbers between what [private] credit’s going to give you versus not diluting a business that is growing 20 percent year over year … well, why would you do that?”