KKR to raise Rs1,500 cr credit fund for India investments

Mumbai: KKR India, the Indian arm of global private equity firm KKR and Co. Lp, is looking to raise another alternative investment fund (AIF) of at least Rs.1,500 crore which will be used to offer credit solutions to Indian companies, said two persons familiar with the development.

Money for the new fund will be raised from high net worth individuals (HNIs) and family offices in India with a co-investment option for the parent company, said one of the two people cited above. Both asked not to be identified.

This is the second AIF that KKR India is seeking to raise. It raised a Rs.1,500 crore corpus in November 2013.

KKR India is raising the new fund at a time when demand for funding from non-bank sources is rising for reasons ranging from the constrained capacity of traditional state-owned lenders to the risk aversion that has seeped into the banking sector due to a growing pile of bad loans. At the same time, Indian companies have started to seek credit offerings tailored to their needs even if these come at a slightly higher cost.

It’s this opportunity that firms such as KKR India are trying to capture through their credit platforms.

“KKR India wants to build a multi-asset class platform through which it can channel local savings for local products across the credit and equity space,” said the second person cited above.

KKR India has both a non-banking financial company (NBFC) and a real estate NBFC through which it offers structured loans.

As part of its plans to strengthen its lending business, KKR India appointed B.V. Krishnan in 2009 as managing director for capital markets. Krishnan was previously at Citigroup Inc., where he worked with Sanjay Nayar, now head of KKR India.

These units now form a significant part of KKR India’s business even as it continues to do traditional private equity deals selectively.

The firm has disbursed about Rs.17,000 crore so far to 55 companies through its various credit platforms including the first AIF it raised less than two years ago, said the first person. The list of borrowers includes companies such as GMR Holdings Pvt. Ltd, Avantha Group and Apollo Hospitals Enterprise Ltd.

Through its private equity vehicle, KKR has invested about $1.4 billion in India so far.

One reason for the focus on the private debt business are high returns.

KKR India Alternative Credit Opportunities Fund, the first AIF raised by KKR India, has seen an average internal rate of return (IRR) of 18% till date, the second person said.

Bank and bond markets in India offer an IRR of 8-9.5%, while so-called special situation funds and real estate financing offer the highest IRRs of 25% and 18-22% respectively.

KKR India is active in the high-yield corporate term loan market which offers 15-18% returns and in structured holding company loans which offer an IRR of 16-20%.

The firm has been mostly doing last-mile financing. This includes funding for completion of projects, acquisitions financing, buyback financing and, in some cases, refinancing of bank debt.

“In the present scenario, where the banking system is unable to meet the demand for capital, there is huge demand for debt as well as credit funding in India. Also, funds such as KKR can add value to the (borrowing) company, especially in identifying issues and sorting them out at very early stages,” said a managing partner at a Mumbai-based financial advisory firm on condition of anonymity. They can also offer credit for longer periods when compared with banks, he added.

An investment banker, who also asked not to be identified, added that such financing vehicles are also offering HNIs an alternative and potentially high-yielding investment option.

In its latest deal, last month, KKR India invested $150 million in JBF Industries Ltd, a manufacturer of polyester value-chain products.

As part of this debt-plus-equity transaction, KKR said it would acquire a 20% stake in JBF and also own zero-coupon convertible preference shares with 14.5% voting rights in JBF Global Pte. Ltd, Singapore.

In April, KKR funded the promoters’ buyback of a 27% stake held by private equity firm Warburg Pincus Llc in Metropolis Healthcare Ltd.

In September 2014, KKR India and co-investors provided about Rs.1,000 crore ($164.2 million) in structured long-term financing to GMR Holdings, the holding company for GMR Infrastructure Ltd.

“Given the stress in the economy, there are situations where promoters need funding to meet capital buyback commitments or funding of incomplete assets or bridge financing for asset creation or commencement; special situations arise which the banking system cannot fund. Debt funds generally fund these transactions,” said Abizer Diwanji, partner and national leader (financial services) at consulting firm EY.

KKR India is not the only global private equity firm that is active in the debt financing segment. In 2011, Apollo Global Management Llc joined hands with domestic private equity firm ICICI Venture to launch a special situations fund—AION Capital Partners—with $825 million in committed capital.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.