Opportunity Amidst Uncertainty: KKR India Eyes SME, Housing Finance Businesses
The Indian unit of global investment firm KKR & Co. is looking to snap up business lines of the country’s non bank lenders, as they seek to unlock capital against a backdrop of tight liquidity and higher rates. In particular, the non-banking financial units of KKR India are scouting for businesses in the housing finance segment or those that lend to small and medium enterprises, said a person familiar with the matter who spoke on condition of anonymity.
A default by the once AAA-rated Infrastructure Leasing & Financial Services group has led to a funding squeeze and increased risk aversion towards Indian NBFCs. Many of these firms are now looking to sell both loan portfolios and complete business lines to generate cash.
This gives the two NBFC units of KKR India an opportunity to buy functional business lines, which bring along a branch network and the staff needed to service loan books, rather than just loan portfolios, said the person quoted above. SME and housing loan businesses of a size of between Rs 1000-5000 crore would be of interest to the company, the person added.
KKR India’s corporate NBFC currently has Rs 6,000 crore in assets under management, while its real estate NBFC has a book of about Rs 4,000 crore. These two entities operate separately from KKR’s core private equity business. The group also has a separate special situations fund, through which it offers structured finance to stressed firms.
BloombergQuint could not confirm the names of companies that KKR is in conversation with. KKR did not respond to an email seeking clarity.
NBFCs with large SME loan portfolios include Bajaj Finance Ltd. and Edelweiss Financial Services Ltd., among others. Capital First Ltd. also has a sizeable SME business but is in the middle of a merger process with IDFC Bank Ltd.
In the housing finance segment, HDFC Ltd, Indiabulls Housing Finance Ltd., DHFL and LIC Housing Finance Ltd. are some of the bigger companies. On Tuesday, Economic Times reported that KKR and other investors are in conversation with Wadhawan Capital, promoter group of DHFL, for a purchase of the company’s Aadhar Housing Finance Unit.
Over the last two years, many of these NBFCs have grown rapidly using short term financing and are now scrambling to unlock liquidity and capital by selling assets and portfolios. The turn in the environment has also meant that valuations of some of these assets are now more reasonable.
The person quoted above explained that a reasonable valuation to pay for a business-to-consumer NBFC business is in the range of 2 times book value. For a business-to-business NBFC, an attractive valuation would be closer to 1.5 times book value. However, a tougher part of such a transaction is the due diligence needed to determine the quality of the underlying book, this person added.