KKR plans to build out credit business in Asia

KKR is eyeing opportunities to expand its credit business in Asia amid lagging IPO markets and tightened bank lending.

The private equity giant’s public market activities represents “a global business and one that we’ll continue to build out in Asia”, said co-founder Henry Kravis during a visit to Hong Kong this week. The business includes non-investment-grade credit, senior-secured debt, direct lending, high yield, mezzanine and special situations.

KKR Asia managing partner Joseph Bae notes that “the issue in Asia from a credit standpoint is there’s a very nascent, underdeveloped high-yield bond market”. KKR plans to focus on high-yield bonds, structured credit and mezzanine financing, which Bae calls "unavailable debt". 

“A lot of corporates and families here in Asia, quite frankly, could benefit from that,” he adds. Regional companies, in particular, would find credit a more appealing way to raise capital than issuing equity during a depressed market.

India, where KKR has provided about $1.5 billion in financing over the past two-and-a-half years, “is probably the one market where we have the most experience”.  

However, Bae says India is a unique market from a PE standpoint. Family-owned businesses are often reluctant to issue equity that would dilute shareholder stakes, “[but] they need capital to grow”.

Lending to small- and mid-sized Asian companies has increasingly been a target of firms such as SC Lowy, Olympus Capital and ADM Capital and now KKR.

“How can we help a company accomplish what it needs to accomplish?” says Kravis. “That may mean we help them redo their capital structure [or] help them get debt capital.” He adds: “Banks are cutting back, and capital is not as plentiful for mid-sized and smaller companies as it was before.”

Real estate is another area of interest in Asia for KKR, particularly in China and India, where the asset class as a growth market, compared to that in more mature economies. As of the end of March, property comprised only 2% of KKR's portfolio of Asian investments.

“Most of the major real estate investors in this part of the world exited the market during and post the global financial crisis," says Bae, “so all the platforms associated with the big investment banks [and] commercial banks have basically been shut down, [while] a lot of the independent platforms here have not really dealt with scale.

“From a purely competitive standpoint it’s a really interesting place for us to try to build a new business," he adds, "given the size of the asset class and the marketplace.”