KKR, Fajr close in on stake in Mideast retailer Azadea

KKR & Co and Dubai-based Fajr Capital are close to buying a 25 percent stake in fashion retailer Azadea Group, said three sources aware of the matter, in what would be the U.S. private equity firm's first Middle Eastern investment.

Based in Lebanon but with operations across the wider Middle East, North Africa, Turkey and Pakistan, Azadea holds franchise rights for brands such as Gap, Zara, which is part of Inditex, and Superdry.

While the sources would not put a value on the bid by the two firms, the stake being sold by the owners was expected to fetch between $400 million and $500 million.

"The deal isn't done but it's getting closer," one source with knowledge of the deal, who spoke on condition of anonymity as the information is not public, said on Monday.

KKR, Fajr and Azadea all declined to comment.

International investors have been drawn to the Middle East's consumer sector, given the region's young and increasingly wealthy population.

Abraaj Group and U.S. private equity firm TPG Capital completed the purchase of a majority stake in Saudi Arabian fast-food chain Kudu in April, the first Middle Eastern investment by the latter.

KKR has looked at a number of deals in the Middle East to date, including for Kuwait Food Co (Americana).

The advance of other private equity firms into the region though has made the need for KKR to strike a debut deal more pronounced, sources said.

"They have mostly been focused on capital raising in the past in this region but TPG has really pushed KKR into action because of Kudu," said a second source aware of the deal.

Fajr, which includes Malaysian state fund Khazanah Nasional and Abu Dhabi Investment Council among its shareholders, has been on a spending spree in recent months, mostly in collaboration with other funds.

It led a group including Blackstone and Bahrain sovereign fund Mumtalakat in buying a "significant minority stake" in United Arab Emirates-based GEMS Education.

Fajr also joined with investors including Arab Petroleum Investment Corp (APICORP) to acquire Dubai-based oilfield services firm National Petroleum Services.

Founded in 1978 by Wassim Daher, the current chairman, Azadea maintains a strong family presence in the running of the business. Said Daher, Wassim's brother, is chief executive while another sibling, Hassan Daher, is managing director.

Azadea operates more than 50 franchises through more than 500 stores, according to its website.