Special purpose vehicles (SPVs) domiciled in the Cayman Islands are increasingly being used in Middle East private credit transactions, according to Walkers.
It comes as sponsors look to raise capital efficiently while avoiding heavier regulatory regimes in regional financial centres, the legal firm said in an article on 27 January.
Cayman Islands SPVs are commonly structured to raise debt through note issuances or loans rather than equity.
This means they generally fall outside the scope of the Private Funds Act, which applies only to pooled investment funds issuing equity interests.
Walkers said profit-participation loans, where returns are linked to borrower performance but retain debt characteristics, can also be structured to remain outside the act.
Under the Securities Investment Business Act, Cayman SPVs involved solely in loan origination or issuing debt securities do not require licensing or registration.
This is unless they are conducting regulated securities investment business in or from the Cayman Islands, such as discretionary portfolio management.
While SPVs must comply with beneficial ownership, anti-money-laundering and economic substance notification requirements, Walkers said many financing vehicles benefit from exemptions or reduced obligations under Cayman’s economic substance regime.
This regulatory approach allows sponsors to raise capital through vehicles not subject to fund-level regulation while still meeting investor expectations around governance and compliance.
For sponsors seeking greater oversight, Walkers noted that Cayman also offers regulated alternatives.
This includes registration under the Private Funds Act or licensing under the Securities Investment Business Act, depending on the structure and activities of the vehicle.
The firm contrasted Cayman’s framework with regulatory regimes in the Gulf.
Abu Dhabi Global Market introduced a private credit regime in 2023 that requires licensed managers and ongoing regulatory supervision.
Meanwhile, Dubai International Financial Centre rules introduced in 2022 require credit funds to invest at least 90% of assets in credit strategies under the oversight of a Dubai Financial Services Authority-authorised manager.
Walkers said those regimes impose higher licensing, capital and reporting requirements than Cayman SPV structures, contributing to the jurisdiction’s appeal for Middle East-focused private credit transactions.
