From KKR to Blackstone, global PE firms betting big on private credit

At a time when public sector banks (PSBs) have pulled out of corporate credit, and private ones are coming out of their woes, bulge bracket private equity (PE) firms such as KKR, Blackstone and Brookfield are making the most of the situation in the private credit space, including corporate and real estate credit.

Leading the race is US-based KKR. It disbursed Rs 8,173 crore of corporate loans and Rs 4,256 crore of real estate loans in 2018 — almost double of what it did in 2017 in both the segments.

It disbursed about Rs 1,000 crore in real estate financing from January to March this year, including a major deal with Bengaluru-based Emba­ssy group and the KB Kothari group. It also lent Rs 300 crore to Baby Memorial Hospital in Kozhikode in Kerala, said sources in the know.

KKR has two non-banking financial companies (NBFCs) — KKR India Financial Services and KKR India Asset Finance. The latter focuses on real estate loans.

BV Krishnan, chief executive, KKR India Financial Services, said in both cases — corporate finance and real estate finance — the deal volume is going up given the lack of alternative forms of long-term capital.

“So, working with good businesses and promoters in the corporate side, specific micro-markets, and identified developers in the real estate side, we can generate good opportunities in the market,” Krishnan said. 

He added there is a growing need for rescue financings, including one-time settlements to existing creditors, in case of good businesses with bad balance sheets. 

“This is creating a deal flow in the segment we feel will be additive to our efforts,” he added.

KKR’s US counterpart Blackstone disbursed about Rs 3,500 crore in the last year in both real estate and non-real estate private credit. 

Sources said Blackstone could buy stressed loans from banks through its asset restructuring companies (ARCs). Also, if the companies are available through NCLT’s resolution process, it would buy them through PE platform. Blackstone had bought 51 per cent stake in International Asset Reconstruction Company (IARC).

In an interview last year, Blackstone Chairman Stephen Schwarzman said the PE firm has plenty of scope to expand in the private credit sector as Indian banks are staring at Rs 10.2 trillion ($142.2 billion) of bad loans, and have shrunk their wholesale lending books.

However, Blackstone did not comment on the subject. 

Canada-based Brookfield disbursed about $250 million in the last two-three years. Its total disbursal stands at $450 million, mostly in real estate.

Last year, it invested about $100 million in Incor Infrastructure’s residential projects in Hyderabad.

The firm is looking to expand its private credit business in both real estate and other sectors in the coming years, said sources in the know.

A mail sent to Brookfield did not elicit any response as well. 

Experts said the market scenario has given a big scope for global firms to expand in the segment.

“The current credit squeeze in the markets, with most domestic lenders reluctant to lend to many class of borrowers, has opened a window of opportunity for these global players, and the likes where structured lending is required,” said Vimal Bhandari, executive vice-chairman, Kirloskar Capital.

Bhandari said players such as Blackstone can make a significant impact in the private debt market. Their sophistication, size and scale would help in deepening the credit market for quality borrowers.