Henry Kravis, co-founder and co-chairman of private equity giant Kohlberg Kravis & Roberts (KKR), says no country can sustain its growth with an almost non-existent debt market.
“At less than a billion dollars, the corporate debt market size in India is next to nothing. Surely, there is a better way to manage this,” he says.
Kravis says India should not waste the enormous opportunity just waiting to be grabbed. For example, India has five million households with annual income of $50,000 and 22 million households with annual income of $18,000. According to KKR’s calculations, in the next 10 years, the country will have 12 million households with annual income of $80,000 and another 44 million with annual income of $36,000.
“That’s a huge buying and investing power and I wish India learns fast to make its cost of capital more efficient,” he adds. KKR has about $1 billion invested in the country, a small fraction of its total portfolio of $55.5 billion, but that is likely to change as the firm intends to become “partners” with a growing number of Indian companies.
Kravis also says most Indian banks and financial investors are either unwilling or unable to lend money for leveraged acquisitions. KKR is looking at a partnership approach to improve India’s family-owned companies, instead of the buyout model. He would not set goals for the firm’s business in India, but asserted the country was “a very important part of our future.”
“Very few family-owned companies are up for sale in India, nor should they necessarily be. But they are eager to have a partnership approach to figure out what they need to do to grow their businesses globally,” Kravis says.
So, a small investment or stake is alright for KKR in India, as long as the promoters were transparent and open to take the help of private equity (PE) firms to improve their operational systems. In China, too, the firm recently made investments below $75 million each in a liquor store chain and an auto dealer.
He also makes it a point to say that KKR, which got listed in July last year, was much beyond being just a private equity firm. It was into infra financing, asset management — in short, it was a capital solutions provider. “The perception about KKR needs to change, especially since it is listed now,” he said.
The KKR chief had said during his recent visit to India that KKR had a long-term investment culture. “Our job begins the day we buy a particular company. It’s not just about providing capital to companies. Our role is to bring efficiency in the company we acquire. We believe we are entering into a new transparent world,” he said.
So, KKR would continue to be a long-term patient investor and focus on efficiently-built distribution businesses, niche services and infrastructure-related businesses, as it builds on the country’s inherent strengths and satisfy critical gaps. From a product perspective, the firm also sees a role for well-structured mezzanine capital, which can help address growth capital requirements, keeping in mind the business risks associated with the stage of growth.
KKR’s investments in India include $250 million in Bharti Infratel, $900 million in Aricent, Rs 750 crore in Dalmia Cement (Bharat) and $75 million in Coffee Day Holdings. The firm has also completed four debt transactions worth around Rs 2,800 crore through its non-banking financial company.
