KKR's Kravis bullish on Asia private equity, credit

"If you believe everything you read, India is going down the tubes, China is going down the tubes," Kravis told a group of journalists in Hong Kong. "But this is all part of market becoming more mature, a natural part of the a longer cycle. Trees never grow to the sky, there will always be some setbacks and that is what we are going through. And you make your best investments when you go against the tide."

KKR recently closed its second Asia fund at $6 billion - the largest private equity pool ever raised in the region - drawing questions from industry participants as to how such a large amount of capital can be efficiently deployed.

Joe Bae, KKR's Asia managing partner, stressed that the firm remains convinced by the region's long-term fundamentals - rising domestic consumption, urban expansion and an emerging middle class - while recent emerging markets volatility has prompted a fall in valuations. This is expected to continue as investors consider the impact of the US Federal Reserve scaling back monetary stimulus measures, leading to a re-pricing of global capital.

"This creates opportunities to deploy capital in a dislocated environment where valuations are at a lower level than 6-7 months ago," Bae said. "China valuations are now less than 10x forward P/E. It is an exciting environment to be sitting on $6 billion in dry powder."

Kravis added that the debate should not be large funds versus small funds, but a private equity firm simply having sufficient capital to execute its strategy. He cited the example of Oriental Brewery, a South Korean beer company KKR bought for $1.8 billion during the global financial crisis in 2009 and now co-owns with Affinity Equity Partners. KKR was not the highest bidder but won out because the seller, Anheuser-Busch InBev, had confidence in the private equity firm's ability to get the deal financed.

KKR has deployed $5.5 billion in Asia in the last seven years, investing out of its debut regional fund, which closed at $4 billion in 2007, and a $1 billion China growth fund raised in 2010. More than half of these investments have been minority deals.

In recent years, other parts of the business - which spans private, public and capital markets - have also come to the fore, notably credit. In India alone, KKR has supplied $1.5 billion in lower-tier and mezzanine financing over the last two-and-a-half years, operating through a non-banking financial company (NBFC) that is able to lend in local currency.

Credit is expected to grow in prominence across Asia as the PE firm continues its transition from a straight buyout shop into an investor that provides diversified solutions to entrepreneurs. Small and medium-sized enterprises (SMEs) may not want to give up equity, but in the absence of developed public debt markets and willing lenders among local banks, they have few alternatives.

"You will see these capital markets in Asia will build out, but they are not there yet - they are still bank markets," said Kravis.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Buyout
• Expansion
• Buyouts
• Financing
• KKR
• Henry R. Kravis
• Joseph Y. Bae
• Structured finance
• India
• China
• Asia
• buyout
• Growth capital