The investor has raised a gigantic $9.3 billion for its third Asia fund in June, in what could be the largest ever fund mobilization for a particular region.
MUMBAI: US buyout giant KKR & Co has become the first foreign investor to fully own an asset reconstruction company (ARC) in India as it received approval from the Reserve Bank of India at a time when lenders are fighting with a pile of bad loans that have crippled their businesses.
KKR, one of the most aggressive investors in financial services, plans to deploy a major chunk from its record Asia fund for buying troubled assets in the country, multiple sources with direct knowledge of the matter told ET.
"Yes, we received approval from RBI. We are in talks with various lenders on how to practically resolve NPA issues. The idea is not to buy dead assets, but to bring in positive capital and expertise, which will eventually resolve the issue," said one of the sources close to KKR. "ARC would be a platform that enables us to work with the banks and reach into a resolution through bilateral talks rather than getting into NCLT tribunal and related issues."
India's banks are weighed down with $180 billion of stressed assets, acting as a brake on the growth prospects of the world's fastest-expanding major economy.
The New York-headquartered investor plans to set up a separate managed company to put bad loans and bring in expertise to revive the assets, KKR co-founder Henry Kravis told ET in April. "Banks don't have management bandwidth whereas we do. So, we will create equity value by working with the company. That makes an attractive proposition for the banks as well," he said. "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."
When contacted, KKR declined to comment. The investor has raised a gigantic $9.3 billion for its third Asia fund in June, in what could be the largest ever fund mobilization for a particular region. The bulge bracket asset manager, which has already deployed $8 billion in India across various platforms, plans to deploy nearly one fourth of the total Asia corpus in India.
The firm — headed by former Citigroup south Asia chief Sanjay Nayar — has invested $3.2 billion in private equity deals, besides extending more than $1 billion annually in financing through corporate and real estate-focused NBFCs.
In May last year, the government has allowed foreign institutions to have 100% ownership in asset reconstruction companies in a move aimed at resolving mounting problems of bad debt. KKR had earlier planned to buy a minority stake in International Asset Reconstruction Company in which ICICI Bank, HDFC Bank, Tata Capital and City Union Bank are some other shareholders. However, Blackstone has agreed to invest $150 million for significant minority stake in International Asset Reconstruction Company. International investors have been aggressive in setting up ARCs and investing in distressed companies in India.
Caisse de Depot et Placement du Quebec (CDPQ), Canada's second-largest pension fund, has invested close to $250 million in Edelweiss Asset Reconstruction Company, while Aion Capital, a joint venture between ICICI Venture and US PE fund Apollo Global Management, is looking to set up an ARC. Hong Kong-based SSG Capital acquired 49% in Asset Care & Reconstruction Enterprise in 2014, while IFC, the investment arm of World Bank Group, has invested in Encore Asset Reconstruction Co.
