Emerging private equity flows despite crunch

By Peter Apps

LONDON (Reuters) - Private equity deals in established Western economies have almost dried up due to the credit crunch but in emerging markets, billions still flow, including increasing amounts to more exotic frontier areas.

The U.S. mortgage meltdown has left Western banks less willing to lend, stifling the private equity market in developed economies. But private capital flows into the emerging world are likely to be more resilient because they often involve comparatively less bank leverage.

Chinese and Indian stocks have been battered this year, and some investors view these markets as overcrowded and possibly due for a correction. Therefore less popular markets from Angola to Indonesia look set to draw their attention.

The Emerging Markets Venture Capital Association (EMVCA) expects the emerging world's share in private equity deals this year to rise beyond the 10 percent it got in 2007, even if global private equity growth slows.

Private equity in the emerging markets amounted to about $57 billion last year, against a global total of $500-517 billion, it said.

Industry observers also say bank financing in emerging market private equity comes mainly from local banks and alternative funding sources less exposed to the global liquidity crunch.

"If you're dependent on a bank like Citigroup for lending, it just isn't happening," said Sanjeev Kumar, director of private equity firm Delamere and Owl, whose $2 billion private equity portfolio taps institutions and high net worth individuals in the Middle East and North Africa.

"In emerging markets things are still happening... But everyone is in India and China and the deals are drying up. It's harder to make money there now."