Abraaj in talks on logistic firm

DUBAI (Reuters) - Abraaj Capital, the Middle East's biggest private equity firm, is in advanced talks to invest in a logistics firm, and is setting up a new fund worth at least $2 billion to exploit attractive valuations, its managing director said on Monday.

"Right now we do have some transactions at very advanced stages -- before the year end or the start of next year ... Something in logistics which operates in more than one country. It is not a Gulf company," Mustafa Abdel-Wadood told the Reuters Middle East Investment Summit.

Asked whether a fourth fund is likely, Abdel-Wadood said: "It is on the way. It is a constant cycle. The size is an adaptive process ... It will be larger than the last fund."

When asked the potential size of the fund Abdel-Wadood said it would be more than $2 billion with funding coming primarily from regional sources.

"Our core supporters will always remain the region, regional institutions, regional investors with increased participation from non-regional investors," he added.

The firm also has $3 billion to invest in the next two years, roughly the same as January's level, coming from the current fund and the new fund that is in the making.

Abdel-Wadood said the firm had no plans to "realistically" exit from its existing portfolio companies in the next 18 months.

"This is probably not the best exit environment," he said. "There is a little bit of a window ... but there is no pressure for us to do (that)."

Abraaj has about $6.5 billion in funds under management. Among those investments is a stake in United Arab Emirates-based low-cost carrier Air Arabia AIRA.DU.

The private equity firm reiterated its interest in countries with large populations and economies such as Turkey, Saudi Arabia and Egypt. Countries such as Iran have potential but currently still entail too many investment risks, Abdel-Wadood said.

In terms of sectors, Abraaj is looking across the board, but highlighted consumer banking, food, basic infrastructure, healthcare and education.

"The reason is there is a structural imbalance between the demand for all these services and current supply," Abdel-Wadood said.

Private equity activity in the Middle East has suffered during the crisis, but experts see the industry rebounding in 2010, as liquidity is slowly returning to the market, albeit less abundant and at a higher cost.

"It's pricier, its less in how much you can leverage ... generally it's not as easy as it was two years ago," he said.

(Additional Reporting by John Irish, Natsuko Waki, Amran Abocar and Chris Wickham; Editing by Rupert Winchester)