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Dubai: Driven by the strong growth in the regional corporate debt issuance and growing appetite for debt based assets in the private portfolios, Algebra Capital yesterday launched the Beta Mena Fund, an open-ended fund focused on Middle East and North Africa (Mena) corporate credit and local currency markets.
The fund aims to raise $300 million and will be initially offered in dirhams and dollars. Other regional currencies such as the Saudi riyal and Qatari riyal will be offered in the near future.
"The amount of Mena debt created annually is approaching $200 billion and is expected to rise further. Our estimates for 2008 include $95 billion in new bond issuance, 50 per cent of which will be corporate. Sukuk issuance could approach $30 billion in 2008, doubling the region's outstanding sukuk aggregate, " said Mohieddine Kronfol, Managing Director, Algebra Capital.
Last year total Mena bond issuance exceeded $70 billion of which $31.1 billion was corporate debt. According to data compiled by Algebra Capital, during the last five years corporate debt in the region reported compounded annual growth of 80 per cent while the share of corporate debt issues in the total debt issues increased from 3.2 per cent in 2005 to 31.7 per cent last year.
Absolute returns
Aiming for absolute returns above 10 per cent Algebra's debt fund expects to deliver returns above average regional inflation rates.
"Mena debt, which is of investment grade quality, has historically performed well, delivering consistent returns with very low levels of volatility and virtually no defaults," said Kronfol.
"With regional debt issuance growing at north of 50 per cent and set to continue, prospects for increased primary market activity and secondary market depth and liquidity continue to improve," said Kronfol.
The Beta Mena fund will be the first actively managed portfolio in the region operating on an efficient prime brokerage platform. Lehman Brothers will act as the exclusive prime broker for the Beta Mena fund.
"We look forward to working with Algebra Capital and adding them to our state-of-the-art Prime Brokerage platform," said Brian Bisesi, Managing Director, Lehman Brothers Prime Services Origination.
The latest fund is the first foray of Algebra into fixed income funds. The company said that there is strong demand for regional debt denominated in regional currencies from institutions and high net worth individuals as the issuance such debt are on the rise.
Credit cycle
"The launch of the Beta Mena signals the launch of our second line of business, fixed income asset management, an area of strategic importance to us," said Ziad Makkawi, Founder and CEO, Algebra Capital.
Our region is the midst of a positive credit cycle making it an increasingly attractive target for regional and international investor our firm," he said adding, "the Mena region is in."
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