UPDATE 1-KKR plans to invest in cash-strapped Indian firms

Thu Feb 20, 2014 7:18am EST

* Plans to offer capital to struggling Indian companies from $2 bln special fund

* Plans a global infrastructure fund of a "couple of billion" dollars

* "Tough" to buy controlling stakes in emerging-market companies

MUMBAI, Feb 20 (Reuters) - Global private equity firm KKR & Co LP plans to offer funding to struggling companies in India where rising bad loans has constrained bank lending and low demand has ruled out share sales for many small and mid-sized firms.

KKR, whose primary activity involves buying businesses using borrowed money, also intends to invest in India from a planned global infrastructure fund which could amount to a "couple of billion" dollars, KKR co-founder Henry Kravis told reporters on Thursday in India's financial capital of Mumbai.

Asia's third-largest economy is growing at its slowest pace in a decade, reducing the pace of corporate earnings growth and making it difficult for companies to raise money.

"A lot of mid-sized and smaller companies today have found that they can't get capital," Kravis said. "We can provide some capital to help them out."

KKR, which last year raised $6 billion for the biggest-ever Asia-focused fund, is considering approaching Indian companies struggling to revive their businesses with its $2 billion special situation global credit fund, Kravis said.

Kravis' comments come after India's central bank last month said it would encourage private equity firms to "play an active role" in the stressed assets market to help reduce banks' bad loans.

LENDING

KKR, like peers Apollo Global Management and Olympus Capital, has been lending to non-stressed Indian companies for the past few years.

KKR's lending clients have included insurance-to-hospitals group Max India Ltd, the founders of Apollo Hospitals Enterprise Ltd, and the diversified Avantha Group.

"Structured financing is already a larger opportunity for PE funds than originally anticipated," Sanjeev Krishan, a practice head at consultancy PricewaterhouseCoopers, wrote in a recent research report.

"Interest rates in India continue to remain high, and as bank balance sheets come under greater scrutiny, carrying out greater diligence when disbursing money, it opens an opportunity for PE funds as well."

OPENING DOORS

Analysts say lending not only generates stable income for private equity firms, but also opens doors to future buyout deals.

KKR, which last year bought a controlling stake in India's Alliance Tire Group from Warburg Pincus LLC, does not see too many Indian buyout opportunities due to the prevalence of family-owned business structures and families' aversion to sell.

"To do 100 percent private equity transactions in emerging markets is really tough," Kravis said. "It's particularly hard here... It's so rare that all of a sudden a family wakes up and says, 'I will sell my business'."

The value of buyout transactions by PE firms in India, however, jumped nearly three times to $2.1 billion last year from 2012, helped by large deals including Baring Private Equity's $420 million takeover of IT firm Hexaware Technologies Ltd, according to industry tracker VCCEdge.

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