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KKR delays listing to next year as crisis bites

AMSTERDAM/NEW YORK (Reuters) - Kohlberg Kravis Roberts & Co KKR.UL delayed plans to go public after its Amsterdam-listed affiliate suffered big investment losses, the latest blow to the buyout firm's initial public offering plans due to the credit crisis.

KKR, whose investments include asset manager Legg Mason Inc LM.N and mattress maker Sealy Corp ZZ.N, had been planning to merge with KKR Private Equity Investors LP (KPE) KKR.AS and list on the New York Stock Exchange by year's end. But that has been put off until next year, and KKR did not indicate when in 2009 it expected the deal to come.

KKR officials said on a conference call the delay had more to do with the deal process than market turmoil, and the firm expected the transaction to close as structured. The U.S. Securities and Exchange Commission review of the registration statement related to the deal was continuing, it said.

The delay marked the latest IPO to stall amid the global credit crisis and is another indication of problems faced by private equity firms as investments sour in the economic slowdown and a credit freeze makes new deals scarce.

It has been nearly three months since the last U.S. IPO got off the ground, and some analysts don’t expect any stock flotations until sometime in 2009.

“It’s inconceivable that you can do an IPO today with anything that resembles a financial product,” said James Cox, a professor of corporate and securities law at Duke University.

KPE went public in Amsterdam in May 2006 in an offering of $5 billion, or $25 per share. Its shares fell 13.8 percent to $4.25 on Monday, trading at less than one-fifth of the IPO price.

“Certainly, the IPO markets are pretty sluggish at this point. That’s really across the board,” said Michael Kim, an analyst at Sandler O’Neill. “But on top of that, the markets have been weak, and private equity faces some kind of macro headwinds.”

KKR initially signaled its plan to list in July 2007, when it filed a registration statement for an IPO. But the credit crunch hit, and the prospects of going public for any company became tough.

KKR's plan was announced shortly after rival Blackstone Group LP's BX.N initial stock flotation was successful. Since then, Blackstone shares are down 75 percent.

In late July, KPE and KKR, which was founded in 1976 and rose to prominence during the debt-fueled leveraged buyout craze of the 1980s, announced that they planned to merge their businesses, delist from Amsterdam’s exchange and list on the New York Stock exchange.

“Subject to the satisfaction or waiver of the conditions to closing, the parties remain committed to completing the transaction,” KPE said in a statement on Monday.

INVESTMENT LOSSES

KPE’s net asset value, which tracks the worth of its investment portfolio, fell 22.6 percent to $18.85 per share at the end of September from $24.36 at the end of 2007, the fund said.

In that period, KPE said its investments, including the effects from currency changes, depreciated $999.5 million. Two-thirds of that occurred in the third quarter, when the global financial crisis deepened and led to several financial institution failures or buyouts.

The investment losses in KPE's portfolio reflected a wide range of assets, including Energy Future Holdings Corp, NXP, convertible notes from Sun Microsystems Inc JAVA.O, Capmark Financial Group, Alliance Boots AB.UL and Nielsen Co.

At the end of September, KPE said it had investments of $3.87 billion, cash of $3.63 million and debt of $7.77 million.

KPE also said it had drawn down most of its $1 billion credit line, with only $134.2 million left, including the impact of U.S. bank Lehman Brothers Holdings Inc's LEHMQ.PK bankruptcy on the credit line.

“As the decline in KPE’s quarterly NAV evidences, some of our investments faced reduced valuations during the third quarter as a result of the extraordinary turbulence in the global capital markets,” KKR Co-Founder George Roberts said in a statement.

Roberts said the group was redoubling efforts to improve performance amid a weaker economic environment.

TOUGH TIMES

KPE was among several affiliates of larger firms to list in Amsterdam in the past few years. Lehman Brothers Private Equity Partners Ltd LBPE.AS, an affiliate of Lehman that listed in July 2007, has fund and buyout investments.

Buyout firms have listed such vehicles to open up their portfolios to retail investors and boost liquidity. But despite the industry’s reputation for high returns on its investments, success stories with such units have been few and far between.

Carlyle Capital Corp, which was an affiliate of U.S.-based buyout firm Carlyle Group CYL.UL, also listed in Amsterdam, but went bankrupt in March and liquidated its assets as it could not meet margin calls from its lenders. Carlyle Capital Corp mainly invested in mortgage-backed assets.

“I am not remotely surprised that they (KKR) are delaying it until ‘09 because I don’t think it is very easy to get something done right now,” said Marshall Sonenshine, chairman of Sonenshine Partners LLC. “It is close to impossible.”

Editing by David Cowell, John Wallace, Tim Dobbyn and Jeffrey Benkoe

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