Emerging market private credit surges to record $18bn

Lending by private credit firms in emerging markets has surged to record levels this year, even as cracks begin to appear in the US sector after years of rapid growth.

Such firms have lent $18bn so far in emerging markets in 2025, according to data from the Global Private Capital Association, a body representing investors in private markets in developing economies, beating the previous record of $16bn in 2022.

Driving the sector has been a pullback in bank lending in Africa, Latin America and other regions, which “has opened up lanes for private credit investors to step in”, the association said.

While emerging markets still account for a tiny slice of the $1.7tn global private credit industry, they appear to be defying the gloom surrounding the broader sector this year, after sudden bankruptcies at First Brands and Tricolor triggered fears of a wider crisis.

US private credit boomed in the wake of the global financial crisis on the back of demand for loans for private equity buyouts and exotic forms of asset-backed finance that banks were less able to provide. However, that has also led to concerns among some investors over the erosion of controls on borrowing and covenants.

Private equity is less prevalent in emerging markets, and private credit funds have focused more on supplanting traditional bank loans to companies, while retaining tight covenants.

“Changing lending conditions and intensifying competition in the US in particular point to a need for a ‘wider lens’ for private credit allocators,” the GPCA said.

Firms such as Gramercy, RBC BlueBay and Latin American specialist Patria are already big players in secured lending to companies in emerging markets, where high local interest rates and capital requirements can make local banks less competitive.

Many large developing economies have kept interest rates at the highest levels in years in real terms to stave off inflation, such as 15 per cent in Brazil and close to 40 per cent in Turkey.

A sample of 153 emerging market private credit deals showed they were on average leveraged at three times debt to earnings, compared with four to five times for US deals, and had far higher interest coverage ratios, a measure of debt repayment capacity, the GPCA said.

Only a fifth of these loans were to private equity-owned companies, while yields were up to 17 per cent compared with about 10 per cent for typical US direct lending, it added.

The $18bn of investment made this year was across 221 deals as of the end of September, compared with nearly $14bn across 408 deals last year, suggesting that private credit funds are taking on bigger transactions in emerging markets that might otherwise have been funded through bond issuance.

The biggest emerging-market private credit deal this year was a $3.4bn loan to Shapoorji Pallonji, an Indian real estate conglomerate, from a consortium that included Ares and Cerberus. The debt was priced with a yield of close to 20 per cent and was partly backed with a roughly 18 per cent stake in Tata Sons, which Shapoorji Pallonji has been pushing to list.

Other large deals have included a $1.4bn financing — which can grow up to $2.4bn — by Apollo and other investors for Tamara, a Saudi fintech backed by the kingdom’s Public Investment Fund.

Emerging markets-focused funds account for just $54bn of the nearly $1.2tn that has been raised for private debt investing since 2021. Insurers, pension plans and sovereign wealth funds often find it harder to deploy capital at scale in these economies compared with bigger US deals, and typically still prefer developed economies’ bankruptcy regimes.

However, emerging market managers’ pitches to them have highlighted deals that use far less leverage than developed markets while benefiting from foreign law and other protections.

Investment manager Ninety One, which is currently raising a new emerging markets private credit fund, said recently that its lending to projects such as African mobile towers and Brazilian data centres were typically 30 to 40 per cent of the value of the underlying assets.

“Covenant-lite is not a concept in emerging markets,” said Matt Christ, portfolio manager at Ninety One, referring to a trend in developed markets in recent years for lending covenants to be eroded. “These are the attributes of lending that put investors into private credit 15 years ago,” he added.