Kohlberg Kravis Roberts & Co said on Wednesday it has collected a record $6 billion from investors for deals in Asia at a time when many of the region’s companies are struggling to secure capital.
KKR is looking to spend the money on Asian companies benefiting from rising consumption across the region, such as retailers, education and healthcare providers.
Private equity practitioners say now is a favourable time to invest as companies usually awash with financing options are struggling to capitalise on Asia’s growth story. Companies are hesitant to tap volatile equity and debt markets roiled by the prospect of rising US interest rates, meanwhile loans have become more expensive partly due to banks’ rising regulatory compliance costs. The Chinese securities regulator is also not allowing IPOs on mainland stock exchanges at the moment.
“The IPO markets are effectively shut and companies need capital to take advantage of such positive trends as increasing wealth in the region and urbanisation in China,” said Thomas Britt, a Hong Kong-based partner in the private equity transactional services group at law firm Debevoise & Plimpton.
Company valuations are also looking cheaper after stock market falls.
KKR also sees opportunities for acquisitions in the financial services sector. Insurance companies are among the firms looking to sell products to Asia’s growing middle class, many of whom have not previously owned a policy. KKR bid for a stake in Thai Life Insurance earlier this year, but has since dropped out of the auction after being outbid, according to people familiar with the process.
Infrastructure is another area that KKR said looked attractive. Many Asian governments are trying to drum up investment in their infrastructure to help support economic growth. India’s finance minister, Palaniappan Chidambaram, is in Washington this week partly to discuss foreign direct investment in his country’s infrastructure with US business leaders.
Other areas where KKR says it could snag a deal include Asian conglomerates or state-owned enterprises looking to spin out non-core businesses, Asia’s wealth of specialised technology and precision-manufacturing firms, and family-owned companies struggling with succession issues.
However, having the money to spend isn’t everything for private equity firms in Asia. Japanese executives have been leery of teaming up with funds, partly because they see private equity as having a relatively short-term investment horizon, partly for fear they will be shown up for selling too cheaply after funds made outsize returns by snapping up distressed companies in the late 1990s to early 2000s.
KKR tried to invest in Japanese chipmaker Renesas Electronics last year but backed off when a government-linked fund entered the bidding.
In South Korea and Taiwan, funds have also failed to gain traction in recent years, in some measure because executives worry that a deal may not close following high profile cases where regulators have blocked or voiced concerns over deals involving funds.
KKR set up shop in Asia in 2005 and has invested over $5.5 billion in private equity investments in 30 companies across the region. In Asia, KKR has more than 100 executives and senior advisers in seven offices, located in Beijing, Hong Kong, Mumbai, Seoul, Singapore, Sydney and Tokyo.
The fund, called Asian II Fund, is the firm’s third in the region, following its $4 billion regional fund in 2007 and its $1 billion China Growth Fund in 2010. It said that 26%, or $1.47 billion, of the total fund was raised from Asia-based investors.
The California Public Employees’ Retirement System, better known as Calpers, committed $275 million to KKR’s first regional fund, KKR Asian Fund LP, vintage year 2007. So far it has netted an IRR of 13.5% and an investment multiple of 1.48 times, according to Calpers’ website. Joseph Bae, managing partner of KKR in Asia, said: “We look forward to continuing to generate positive results for all our stakeholders.”