KKR rides high on credit business in India

The US-based private equity giant now plans to be a multi-asset and multi-geography investment firm

Since KKR India set up its office here five years ago, it has created a $2-billion portfolio for its lending business, almost twice the $1.1 billion it has invested as private equity (PE). By contrast, the firm’s global portfolio has $30 billion in the credit business, against $100 billion of assets under management, indicating the firm is more attracted to the credit business in India than its traditional PE business.

The US-based private equity firm, known for pioneering leveraged buy-outs and deals such as the $25-billion acquisition of RJR Nabisco in the late 1980s, has been undergoing transformation for about a decade. The company is on the road to becoming a multi-asset and multi-geography investment firm. This has seen the firm moving to cities such as Sao Paulo, Dubai and Mumbai and developing new asset classes, including energy, infrastructure, real estate and credit.

“Today, you need to be able to provide multiple pools of capital to remain a relevant player in the market,” says Sanjay Nayar, member and CEO, KKR India. “So, we prefer to have a holistic discussion with promoters; it could be on buyouts, growth investment, loans or structured debt…we try and provide a long-term solution to entrepreneurs.”

The company extends flexible long-term capital to companies that require balance sheet de-leveraging or capital for long-term growth. Through the past five years, KKR has executed more than $2 billion of structured financing to 21 business groups in India through its credit and capital markets business. Of this, about $700 million (Rs 4,330 crore) has been extended this year, with structured loans such as Rs 1,000 crore to GMR Holdings and Rs 1,900 crore to Amtek Auto’s Singapore-based unit, Amtek Global Technologies.

“Abroad, all banks are de-leveraging. So, large funds are stepping into this vacated space,” says Arvind Dham, chairman, Amtek Auto. “Unlike a mere credit provided by banks, KKR has partnered us in our global expansion, with exposure to both debt and equity. As they are experienced, they are in a much better position to advise us.”

On a broader basis, too, credit markets are much larger than the market for PE. Typically, Indian companies raise $100-130 billion of primary capital in a year. Of this, the equity market accounts for a small pie --- $5-15 billion through PE and $25-30 billion through initial public offerings.

Within the credit market, $30-40 billion is raised through bank credit, while an equal amount is raised through corporate bonds. But India’s corporate bond market isn’t quite matured, as it is primarily used by public sector companies and banks; companies account for only $5-10 billion of this market. As this is primarily accounted for by big business houses, it leaves many mid- and small-sized companies looking for flexible debt capital.

“We try to bridge the gap between the bank market and the equity market and move up and down the capital structure,” says B V Krishnan, managing director at KKR Capital Markets India, which manages the company’s credit businesses, including a non-banking financial company. “The idea is to work with promoters and companies to understand their needs, and structure a credit solution that addresses those,” he adds.

Financing is provided at the holding, as well as operating company levels.

For KKR, another differentiator is its delivery management expertise, under KKR Capstone. “During the due diligence process, the KKR Capstone team works closely with KKR’s investment teams to identify operational value-creation opportunities. We then support boards and management teams in developing 100-day value-creation plans and continue our support beyond operational issues, such as building the team,” says KKR Capstone India director Akhil Puri, while talking about the services its extends to PE portfolio companies, including Alliance Tire, Gland Pharma, TVS Logistics, Magma Fincorp, Dalmia Cement, Coffee Day Resorts, Max India Group and Bharti Infratel.

Now, KKR Capstone is considering extending the same service to its credit business portfolio companies.