The local arm of the American private equity biggie, KohlbergKravis Roberts and Co (KKR), will raise Rs 2,000 crore from wealthy Indian investors and institutions. KKR’s alternative investment fund, which has been recently registered with the capital market regulator Sebi, plans to invest the money in mezzanine and structured credit instruments to fund promoters, among other things.
KKR has been funding companies for over three years from its balance sheet capital.
Now, it’s keen to raise a pool of local capital. It’s sounding out domestic institutions and select high net worth individuals who may be interested to invest in the fund.
The idea is to develop an alternative investment fund market, said a person familiar with the development.
Till now, KKR’s non-banking financial services, KKR India Financial Services, has been offering debt financing to Indian corporates.
According to industry circles, foreign private equity funds and other financial intermediaries have been trying to develop the nascent mezzanine credit market, which offers long-term opportunities in the country. The move comes at a time Indian promoters are looking for more sophisticated capital market instruments than plain vanilla equity and bank loans.
Although structured finance is popular in the west, it’s yet to take off in the local money market.
“If we are right in our macro view, then investments in the mezzanine credit market may start to appeal to not only local investors but also to global investors, particularly those who want to earn a meaningful recurring coupon and enjoy some equity upside without a lot of the volatility and misconfigurations often associated with traditional emerging market public equity indexes,” said KKR in aNovember 2012 report.
Private equity funds have been looking to test the appetite of the market for mezzanine funds. Carlyle Group is said to be raising a fund in India that will focus on corporate and mezzanine financing. Apollo Global Management and ICICI Ventures, too, are raising debt funds for India.
Typically, mezzanine funds would be structured in such a manner that returns lie in a specific range depending on certain pre-defined parameters. These funds look for yields between 16% and 22% depending on the risk profile and size of investments.
Such funds provide bridge loans or operate in areas like promoter and takeover financing where banks have regulatory constraints. KKR lends money to companies with capital structure issues as solutions provider.
“As of now a very small portion of high net worth individuals’ (HNIs) money is getting deployed in alternative assets. In the past, local HNIs who had invested in some of the real estate funds have got decent returns. Therefore, there is appetite to invest in mezzanine funds managed by large international players,” said Rajeev Suneja, partner (financial services), Ernst & Young.
“Having said that, investors would expect a net yield of over 14%-15% post the fund management charges, which is not very easy to generate considering the competitiveness between various NBFCs and mezzanine funds.”
KKR, with $78.3-billion in assets under management as of March 31, has invested over $1 billion in India. It owns significant stakes in companies like Aricent, Avantha Power, Cafe Coffee Day, Dalmia Cement and Alliance Tire.
Source: Times of India