KKR’s Kravis highlights India distress openings

His comments, made during a trip to India, come a few weeks after KKR announced a final close of $2 billion - double the original target - on a special situations fund that will make distressed and event-driven investments globally.

They also follow an announcement by the Reserve Bank of India that PE firms with experience in resolution and recovery will be able to participate in auctions of non-performing assets, and raise leveraged financing from domestic banks in support of these activities.

"There is a dislocation in Indian markets," said Kravis, Bloomberg reported. "There are some very good companies and what is wrong with them is that their capital structure is impaired and we can help them out."

He said that these companies may receive structured loans or equity from funds including KKR Special Situations Fund. The private equity firm is also active in India through its $6 billion pan-Asian fund and KKR India Financial Services, a non-banking financial company that provides rupee-denominated structured financing for local businesses.

Kravis added that KKR is also open to buying pools of non-performing loans from Indian banks, which are under pressure to replenish capital and focus on asset quality.

Stressed assets, including bad debts and restructured loans, rose to 10.2% of total debt held by Indian banks as of September, the higher level in 10 years. Although inflation is slowing and the current account and budget deficits have narrowed, India is growing at its slowest pace in a decade.

According to AVCJ Research, KKR deployed more than $700 million in India in 2013 through private equity investments. Minority deals included drugs manufacturer Gland Pharma and Apollo Hospitals Group, while the headline buyout was Alliance Tire Group (ATG). The PE firm is understood to have paid $450-500 million for a more than 80% stake in ATG and assumed around $125 million in debt.

While India remains a predominantly growth capital market, buyouts came to a record $1.3 billion in 2013. Industry participants expect to see more of these deals, driven generational change among family owners with younger members more open to giving up control, divestments of non-core assets by conglomerates that need to pay down debt, and monetization driven by entrepreneurs' inability to scale up beyond a certain level.

Kravis, however, warned that control deals remain a challenge because many entrepreneurs are loath to give up equity in the companies they have founded - a dynamic, it could be argued, that has given traction to KKR's structured finance offerings in the country.

"To do 100% private equity transactions in emerging markets is really tough," he said. "It's so rare that all of a sudden a family wakes up and says, 'I will sell my business.'"

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• Topics
• South Asia
• Credit/Special Situations
• India
• KKR
• Distress
• buyout
• Henry R. Kravis