KKR & Co., the buyout firm founded by George R. Roberts and Henry R. Kravis, plans to invest in failing Indian companies and in local banks as stressed loans climb to a decade high in Asia’s third-largest economy.
The private-equity firm, which has raised $2 billion for a global fund that will provide financing to distressed firms, may also consider buying a pool of bad loans from Indian banks, Kravis told reporters in Mumbai yesterday. Troubled Indian companies may get structured loans or equity from funds including the KKR Special Situations Fund LP, he said.
KKR is seeking investment opportunities in the South Asian nation after the weakest pace of growth in a decade and rising interest rates eroded borrowers’ ability to repay loans. India’s central bank last month proposed penalties and incentives, urging banks to corral soured debt in a bid to strengthen the financial system amid the slowdown.
“There is a dislocation in Indian markets,” New York-based KKR’s Co-Chairman Kravis told reporters. “There are some very good companies and what is wrong with them is that their capital structure is impaired and we can help them out.”
KKR has invested $1.6 billion of private-equity funds in India and lent a similar amount to local companies through its local finance company, said Kravis.
Indian banks are under pressure to focus on their asset quality, Kravis said.
Stressed assets, which include bad debts and restructured loans, rose to 10.2 percent of total debt at Indian banks, the highest in a decade, as of Sept. 30, data compiled by the Reserve Bank of India show. The RBI has raised its benchmark repurchase rate three times since mid-September to rein in consumer-price inflation that averaged 10 percent in 2013.
“Indian banks will have to replenish capital and therein lies an opportunity for us,” Kravis said.
The South Asian economy may be showing signs of recovery with slowing inflation and narrowing current-account and budget deficits, he said.
Gains in the consumer-price index eased to the slowest pace since January 2012. Finance Minister Palaniappan Chidambaram told lawmakers this week the government will cut the budget shortfall to 4.6 percent of gross domestic product in the year ending March 31, reining it within the target of 4.8 percent.
“Now is the time to put money here,” he said. “There are really some positive things that I see as a foreign investor. Right now, like many countries, there are a lot of questions. That doesn’t mean it can’t go back to growth again.”
The rupee has rebounded almost 11 percent from a record low it touched in August, while the benchmark S&P BSE Sensex index of 30 stocks has outperformed peers in Brazil, Russia and China in the past 12 months, according to data compiled by Bloomberg.
KKR’s assets under management rose to $94.3 billion from $90.2 billion at the end of the third quarter as the firm raised more money, including for its eleventh North America buyout fund, its first real estate fund and a pool to invest in special situations. KKR recently closed the North America fund, known as NAXI, with $9 billion, three years after it started marketing the pool to clients.
Private-equity funds and asset reconstruction companies will be encouraged to “play an active role in stressed assets markets,” the RBI said in January. Leveraged buyouts will be allowed for “specialized entities” to acquire stressed companies, the regulator said.
Blackstone Group LP said in September it raised a $5 billion fund to provide financing to distressed businesses in the U.S. and Europe. Banks in Europe are disposing of assets to meet Basel III capital rules, prompting private-equity funds to expand their credit business.
In India, KKR has stakes in Bharti Infratel Ltd., Coffee Day Resorts and Magma Fincorp Ltd., according to the company’s website. The firm is also looking to invest in infrastructure in India such as “ports, pipelines,” according to Kravis.