KKR's mantra for India: partnerships, not buyouts

He would have 31 meetings during his short stay in India to “build relationships” with government officials and industry. Henry Kravis, founder of Kohlberg Kravis & Roberts (KKR), a private equity firm he co-founded in 1976, has made it a point to come to India at least thrice a year.

Though the apparent enthusiasm has so far not translated into real big-ticket investments – KKR has about $1 billion invested in the country, a small fraction of its total portfolio of $55.5 billion -- that is likely to change as the firm intends to become “partners” with a growing number of Indian companies.

In Mumbai, Kravis told reporters that India, China and Brazil were a very important part of KKR’s future. While he did not want to set any target for the firm’s business in India, Kravis, who turned 67 today, said KKR was looking at a partnership approach to improve India’s family-owned companies, instead of the buyout model.

“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 said. 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.

Pointing out the challenges in doing business in India, Kravis said most Indian banks and financial investors were unwilling or unable to lend money for leveraged acquisitions. At around half-a-million dollar, the corporate debt market size in India was “next to nothing”.

There is a buzz that of the many meetings scheduled with industry bigwigs, there is one with Reliance Industries Chairman Mukesh Ambani, regarding a funding partnership for the firm’s shale gas foray into the US. However, Kravis said he would not comment on any specific corporate house.

He also made 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’s listed now,” he said.

On the firm’s investment philosophy, Kravis said 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.”

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.

On its global operations, Kravis said the fortunes of PE firms took a big hit during the financial crisis, but he was not ready for a “tombstone”. The global economy and financial markets started improving last year and should gain speed in 2011. “It’s not straight-up, but there is a lot of dry powder in equity to be invested, and now the debt market is opening up.”