With few big deals, private equity moves to be Asia's new banker
By Stephen Aldred
HONG KONG (Reuters) - In three years, global private equity firm KKR & Co (KKR.N: Quote) has provided over $1.5 billion in loans to companies in India, a business traditionally handled by state-owned and private sector banks.
Encouraged by that success, KKR - which rose to prominence with its hostile $25 billion takeover of U.S. food and tobacco giant RJR Nabisco in 1989 - plans to expand the niche business in China and across Asia.
The move by private equity into lending comes at a time when buyout deals in Asia are few and far between and as traditional banks retreat. Apollo Global Management (APO.N: Quote), KKR and Olympus Capital are raising credit funds as they seek out alternative sources of income. At least $6.6 billion is being raised by 12 funds for investment in Asia, according to Private Equity International and Thomson Reuters data.
At the same time, credit across Asia has grown tight, leaving small businesses and family-owned firms short of capital as the big banks focus their attention on top-tier clients.
The business model adopted by private equity in Asia is very different to that in the United States and Europe, where private equity makes its profits through large buyouts. In Asia, loans as small as $50 million are a growing part of KKR's business as it expands a model developed by its India head, Sanjay Nayar, who was Citigroup's (C.N: Quote) former Asia CEO.
"This country is going to take time to develop into a sophisticated private equity market. There's no point in having a single product strategy," said Nayar.
Big buyouts are rare in Asia, but the region's millions of small entrepreneurs are starved of capital for businesses from farming to software development. And powerful families that dominate Asia's emerging economies are reluctant to sell stakes in their businesses, but will take a loan. Continued...