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KKR Searches for India Corporate Loan, Financier M&A Deals

(Bloomberg) -- KKR & Co. is seeking to lend in partnership with Indian banks and buy more local non-bank financiers as a funding squeeze in the world’s fastest growing economy creates opportunities for U.S. private equity giants.

“We are in dialogue with banks to see if there are creative ways to partner” to lend to small-to-mid sized companies, B V Krishnan, chief executive officer of KKR India Financial Services, said in an interview in Mumbai. KKR is also looking for acquisitions of Indian non-bank lenders, according to Krishnan, in line with what people with knowledge of the matter said in October.

Global investors from Oaktree Capital Group LLC to Varde Partners have mulled lending to companies in India, where the lack of a deep bond market and a bad-debt crisis have constrained borrowers’ attempts to access longer-term funds. Financing for smaller firms has dried up since a string of shock defaults by shadow lender Infrastructure Leasing and Financial Services Ltd. put the non-bank financing industry under a spotlight.

KKR Searches for India Corporate Loan, Financier M&A Deals

Dewan Housing Finance Corp., a mortgage lender, has seen its stock price sink and credit ratings cut over the past month after being hit by allegations of inappropriate fund transfers, claims that it denies. Its parent sold a 70 percent stake in Aadhar Housing Finance Ltd., a lender to low-income individuals, to funds managed by Blackstone LP earlier this month.

Blackstone plans to make an initial capital infusion into Aadhar of about $112 million, which will reduce to about half the company’s debt to equity ratio, the U.S. firm said in a statement this month.

KKR already operates two local non-bank financiers -- KKR India Financial Services Pvt and KKR India Asset Finance Pvt -- and also manages credit funds in India with outstanding loans of about 110 billion rupees ($1.55 billion), data provided by the company show.

Krishnan also shared his views on the impact of the IL&FS defaults and on buying loans. Comments in the following Q&A have been edited and condensed:

What will be the next pain point for India’s financial system?

The overall ecosystem is still in a very tricky place and one can expect things to pop at any moment. Companies in the supply chain of larger manufacturers will experience distress if the financing situation doesn’t improve.

How has due diligence for deals changed after IL&FS?

One always did analysis of the plant and the management team. But you assumed certain parts of risks pertaining to the balance sheet, like working capital, could be easily addressed. But today you can’t take that for granted. So it’s really more enhanced diligence in that area.

What is hindering KKR’s attempts to buy loans from lenders?

The lack of standardized loan and bond documentation makes it difficult to acquire wholesale loans and price them, on a secondary basis. There is also a lack of standardization in terms of how lenders reckon defaults – several lenders treat loans and bonds as performing, despite covenant defaults, thereby resulting in differences in risk perception.

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