KKR's Kravis sees opportunity in banks' stressed assets

The 'dislocation in markets' excites Henry Kravis, co-founder of KKR

A couple of years ago, India topped the list of preferred investment destinations for global investors. Today, it is at the bottom, as corporate India is struggling to keep its head above waters in a slowing economy and banks battle a mountain of debts.

Both banks and capital markets — primary sources of funding for Indian corporations — are in the doldrums. In the absence of a thriving corporate bond market, Indian firms have little recourse to capital. But, it is this “dislocation in markets” that excites Henry Kravis, co-founder of global private equity firm KKR, the most about India at this point.

Kravis is in the country to evaluate special investment opportunities for his newly launched Special Situations Fund.

On January 9, KKR closed a $2-billion Special Situations Fund globally, which will invest in distressed assets. Going by the quarterly pile-up of stressed loans by Indian banks, this figure sounds small, but capital is not an issue, says Kravis.

There are plenty of investors willing to put their money into good assets and there are plenty of these in India at this point of time. Says Kravis: “Indian banks are faced with an issue of capital replenishment if they have to write down bad assets. We can partner with Indian banks and provide a solution to them in this regard.”

While KKR might not directly invest in banks, it is open to looking at acquiring stressed assets from banks or work with banks by creating a special purpose vehicle where stressed assets will be restructured. Alternatively, they can also infuse capital into stressed companies and help a bank increase the tenure of a loan rather than write down a bad loan.

KKR sees an opportunity in these stressed assets, as there are plenty of Indian companies that have a global footprint and are doing well but are faced with a challenge at this time. In such situations, KKR pitches in with capital and support. And returns on these investments are as good if not better than private equity investments.

But are Indian conglomerates receptive to inputs from investors? Kravis cites the example of an Indian conglomerate that wanted to associate with his firm, and it invested money at the holding company level. The company now would have access to several partnerships that KKR has across the globe.

Currently, KKR has $210 billion in revenues (through its investments) and employs a million people. Capital is commodity, says Kravis. What his firm really bring to the table is partnerships and capability. Another company is in talks with KKR to refinance its debt and a PE firm is looking at doubling its investment in three years. Clearly, there's money to be made in this market and KKR does not want to lose it. It's these contrarian calls that has helped the company post  ROEs of 27 per cent and above.

Kravis is glad that he took his India head Sanjay Nayar's advice seriously and chosen not to focus on pure-play private equity options and buyouts in India and look at “special opportunities” in the Indian market.