KKR to boost focus on special sits in China

According to the Financial Times, KKR is looking to expand its $2 billion special situations vehicle into Hong Kong within the next 6-9 months to target indebted companies. KKR expects a proliferation of these assets to parallel an economic slowdown. "If [large Asian economies such as China] would be slowing to half the rate of growth, that would be the equivalent of a massive recession in the US or Europe and would create opportunities to invest," Bill Sonneborn, head of KKR Asset Management, told the Financial Times.

Most private equity firms have approached China investing with an eye on growth, but investors have also prepared themselves for distressed opportunities largely in the real estate sector. Over the last year, the government has tightened its lending regulations to thwart inflation and rein in real estate prices, starving many companies of cash and potentially creating an inroad for distressed investors.

Speaking to AVCJ in August, Benjamin Fanger, founder and chairman of China distressed debt investor Shoreline Capital Management, said he expected to see "tremendous opportunities" in not only the property segment, but also in energy, among other sectors. He noted that in the six-month, fully secured bridge loan space, monthly interest rates that borrowers were willing to pay have risen sharply from 1.5% to 4%, which is where Shoreline did its last deal in late 2010.

Phil Groves, president of DAC Management, advised that 2011 is a time for preparation. "The Chinese market hasn't yet attained the level of fluidity seen in Western distressed markets," he told AVCJ. "This means investors need to create an on-the-ground infrastructure to run a scalable distressed book."

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• Topics
• Credit/Special Situations
• Greater China
• KKR
• Distressed
• China
• Real estate