KKR bets on stress; Blackstone on realty

KKR says it will invest more in stressed Indian firms that require immediate funding

Kohlberg Kravis Roberts (KKR & Co) and Blackstone Group LP, two of the major private equity (PE) investors in India, are planning to increase their exposure in the country by changing their investment strategy. While Blackstone is doing a lot of real estate investments, KKR says it will focus more on investing in stressed corporates.

Following a series of dud investment deals, including Gokaldas and MCX, Blackstone recently made investments in the commercial real estate sector. On the other hand, KKR said it would invest more in stressed Indian companies that require immediate funding.

According to analysts, in recent times, structured finance deals have been quite common and the key reason is that the cost of equity has increased significantly, considering the unfavourable Indian macro situation. "From an investor's standpoint, they have some predictability of returns, which is a key factor considering so many of their investments made in 2006-08 have not made money, and they get some collateral as well. Accordingly, a number of funds now invest out of multiple vehicles - this trend is expected to continue at least in the near future and may be longer in sectors such as capital goods and operational infrastructure," says Sanjeev Krishnan, executive director and leader (private equity & transaction services) at Pricewaterhouse-Coopers, on changed investment strategy of funds such as KKR.

So far, KKR has invested $1.6 billion in India and its Indian finance company has invested a similar amount in Indian companies. Blac-kstone, on the other hand, has invested about $1.7 billion in the country with its recent investments mainly in the commercial real estate space (see chart).

KKR, led by former Citibank India CEO Sanjay Nayar, recently said stressed Indian firms are likely to get structured loans or equity from funds, including the KKR Special Situations Fund. "There are some very good firms and what's wrong with them is that their capital structure is impaired and we can help them out," said Henry Kravis, co-chairman and co-CEO of KKR, in Mumbai, on February 21.

Since 2006, KKR has invested in an assortment of companies, including Alliance Tire, Bharti Infratel, and Coffee Day Resorts, whereas Blackstone invested in Gokaldas Exports, a textile company, and Moser Baer Projects. Blackstone recently announced that it would buy out the iconic Express Towers in Nariman Point in Mumbai for about Rs 900 crore.

Meanwhile, Blackstone also changed its leadership team in December 2013 with Amit Dixit and Mathew Cyriac taking over from Akhil Gupta as co-heads of its India operations and Gupta being made the non-executive chairman of Blackstone India. Jonathan Gray, the global head of the $80-billion real estate fund at Blackstone Group LP, says the fund plans to spend more money on properties abroad, especially in emerging markets such as India. The flight of capital from China, India, Brazil and other emerging markets has created a void that the firm is angling to fill, he said last month in New York. "Most people have said emerging markets have become too scary and the skittishness benefits investors in two ways. The drop in capital inflows means our capital gets treated better. And you can buy things at a more favorable price because people need your capital more," says Gray.