By Libby George and Rodrigo Campos LONDON/NEW YORK (Reuters) -An intricate series of pipes off Angola's Atlantic coast snakes toward a new fuel refinery that signals the country's push for energy independence — and its use of private creditors, instead of banks, to fund a big-ticket project. "We're not the lender of last resort," said Felipe Berliner, co-founder of emerging markets asset manager Gemcorp, which provided the bulk of funding for the refinery, using private capital. "Sometimes we are the only lender." Private credit for emerging markets — driven by investors' hunt for yields and saturation in developed Western markets — could grow exponentially, veteran investors told Reuters, providing tens of billions in funding as bilateral lending and foreign aid shrink. "This is a paradigm shift," said Pramol Dhawan, head of emerging markets portfolio management at PIMCO. "The need to globally reallocate is not a hedge — it's a secular thesis." PIMCO has committed around $30 billion across 140 emerging market deals in five years, and expects to boost annual lending by 30% this year to $10 billion. Other investors are targeting similar increases. RAPID GROWTH, BUT YIELDS SQUEEZED Private credit skyrocketed over the past 20 years, with global assets under management rising to over $1.2 trillion from $200 million in the early 2000s, according to the Bank for International Settlements. The funding filled a gap for companies, mainly in the U.S., as banks limited lending due to regulations and capital requirements. Today, emerging markets get less than 10% of that cash. But the U.S. and Europe are saturated; competition has driven down margins, and bets are riskier. Experts from JPMorgan CEO Jamie Dimon to the IMF warn private credit looks shaky; the collapse of U.S. firms Tricolor and First Brands underscored the risks. Emerging markets, investors say, have bankable projects so keen for cash that you can pick and choose. "Emerging market companies have been forced to be more fundamentally conservative," said Matt Christ, portfolio manager at London-based global investment manager Ninety One. Developed markets are "priced for perfection", while emerging markets offer more upside. He said EM yields are 150 to 300 basis points higher than their developed market peers — and risk is often lower than ratings suggest. Christ, whose private credit portfolio is around $8 billion globally, sees scope to expand to $15 billion. EM firms, he said, are used to volatility and political instability — unlike most Western firms. "Developed market companies are going into an era they've never experienced before, but emerging market companies have been doing this for a long time," he said. Gustavo Ferraro, head of capital solutions at emerging markets-focused fund manager Gramercy, also said EM risk profiles and returns have surpassed those in developed markets. "The U.S. market isn't the benchmark anymore," he said. "Our (investors) want yield and uncorrelated exposure." Gramercy has doubled its private credit investment in five years to $4.8 billion, focusing on Latin America, Turkey and parts of Africa. Ninety One said that in Turkey, where authorities are limiting bank lending to cool inflation, private credit is filling a gap. FROM SOVEREIGNS TO SAUDI COMPANIES Most EM private credit is asset-backed — giving investors anything from company shares to control over the project itself. The structure favours infrastructure, but funding has gone to sovereign budgets and Turkish cities' transport networks. Angola's new refinery, mostly funded by Gemcorp with state oil company Sonangol also providing funds, will ultimately run at 60,000 barrels per day and make sub-Saharan Africa's No. 2 oil producer less reliant on costly fuel imports. The plant's first phase, which cost $475 million, is due to start operation by the end of the year. Gemcorp has also funded a wind farm in Lake Turkana in Kenya, a water sanitation project in Angola and power transmission between Angola and Namibia. A Gemcorp survey showed 67% of EM private credit went to large or medium corporates, and 22% to sovereign or quasi-sovereign projects. Gemcorp is launching a $1 billion fund targeting mid-market Saudi companies. "They are underfunded, they don't have access to the flexible capital they need to maintain growth from the government's fiscal push," Berliner said. The firm also funds Central American commodity exports to the U.S., West African fuel prepayment deals and gold producers. Berliner and others say private credit is flexible, fast and offers customised repayment terms — from upfront fees to extended maturities or EBITDA warrants (earnings before interest, taxes, depreciation, and amortization) — making it ideal for upstarts and lower-rated sovereigns. "We're not replacing banks anymore. We're building something that didn't exist," Ferraro said. "This is bespoke financing for bespoke problems. That's what EM has in abundance." Privately, some bond investors worry private credit — nimbler and less onerous than bonded debt — could eat into their business. Others fear bigger problems if borrowers hit trouble. "If something goes wrong, like a big restructure, how does private credit deal with that? We don't really know," said Daniel Cash, associate professor of law at the UK's Aston University, adding that the "much more opaque" lending could also create issues. (Reporting by Libby George in London and Rodrigo Campos in New York. Additional reporting by Nell Mackenzie; Editing by Susan Fenton)
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