KKR back to promoter financing, working with banks for term loans

US-based investor KKR is going back to promoter financing, with structured credit deals and balance sheet solutions, at a time when liquidity has become tight in the market.

KKR is in talks with promoters of companies to put together long-term holding company financing that can help the latter consolidate their debt, said B V Krishnan, chief executive officer at KKR India Financial Services, one of the two main non-bank finance corporations (NBFCs) of KKR in the country. The other NBFC is KKR India Asset Finance, a realty-focused one; Singaporean sovereign fund GIC is one of the main investors.

“The idea is to minimise the risk to the promoters of selling their good business under distress, while at the same time focusing on identifying cash events to take-out these facilities over time. We want to work as partners and help in governance, and in driving value and liquidity creation over time, while minimising immediate-term risk,” said Krishnan.

The promoter financing market in the country is roughly Rs 60,000 crore. It is led by mutual funds and the likes of Edelweiss, JM Financial and IIFL. Margin financing is done by brokerage houses.

KKR commenced in the credit business in 2009. It helped put together several well-structured holding company financing for good businesses, to help consolidate such loans. However, over the past few years, given significant liquidity in the short-end, margin financing had made a significant comeback and at low cost to promoters, said Krishnan.

“In recent times, risk management in this context has come to the fore, where rising levels of share pledges and volatile stock price movements have led to growing concerns among the lending community,” he explained.

He added that KKR did $750 million to $1 billion of structured corporate financing every year and $500-750 mn of real estate financing.

B V Krishnan, CEO, KKR India Financial Services
Krishnan said KKR was also working with banks to provide well-structured term loans to corporates, wherein the latter can bring in working capital and related services.

“Over the past couple of years, the balance sheets of mid-market companies have carried significant risk as availability of both term financing and working capital financing has come down substantially, as banks have pulled back in a meaningful way. This is leading to stress in this eco-system, which could reflect in slower industrial growth over time. The opportunity for us here is to provide on well-structured term loans, in partnership with banks, thereby helping companies invest and drive economic growth.”

Krishnan, said KKR was also exploring creative risk participation with banks, even in the working capital segment, to enhance capacity in the system.

Ajay Jain, chairman and managing director of Monal Capital, said tight liquidity and slow lending by banks was advantageous for KKR, in terms of better pricing, security, and quality proposals. "There is a huge demand from corporates for credit and this opportunity is available for investoRs such as KKR, till the time banks get aggressive about lending," he said.

What lies ahead
  • KKR is in talks with promoters of companies to put together long term holding company financing
  • KKR does $ 750 mn to $ 1 bn corporate financing; $ 500-750 mn of realty financing 
  • KKR is co-working with banks to give term loans and working capital to corporate firms
  • The promoter financing market is Rs 60,000 crore and is led by MFs and the likes of Edelweiss, JM Financial, IIFL and others

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