Emerging market mezzanine: an untapped opportunity

Author: Danielle Myles | Published: 9 Dec 2014

Misconceptions about the risks and structuring possibilities involved in emerging market mezzanine are limiting investors' ability to tap lucrative opportunities they wouldn't otherwise be able to access.

It's proving somewhat of a missed opportunity for mezzanine providers, as well as growing businesses in developing economies that are not able to obtain bank finance.

According to the Emerging Market Private Equity Association (EMPEA), as at April 2014 the proportion of emerging market-focussed general partners providing mezzanine finance ranged from 1.2% to 2.6%.

Misunderstandings about the asset class, plus a lack of competition among private equity firms, means capital structures are not being optimised through the inclusion of a mezzanine tranche.

"I am actually disappointed about the market's development over the past two years," said Joachim Schumacher, senior director at German development bank DEG speaking on an EMPEA webinar last month. "There has been some progress, but I think the...