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Taking A Soft Approach

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When Henry Kravis, co-founder of iconic private equity (PE) firm Kohlberg Kravis & Roberts (KKR), marked his first official visit to India in May 2009, he signalled that the leveraged buyouts specialist would tread a gentler path in India. So far, KKR has kept that promise. Its initial deals have been for minority stakes in companies across sectors such as telecom, cement and retail. Kravis, who visits the country at least thrice a year, wants the gentler approach to personify KKR in India.

The obvious reason is that leveraged buyouts, KKR's traditional sweet spot, do not yet exist here. "There's nothing to buy here; family companies are not for sale," he said at a press briefing in Mumbai this week.

But that has not stopped the world's oldest PE firm from flexing its muscles, though discreetly, in India. In the two-odd years since it started making direct investments, the firm has put about $1 billion to work. Its largest PE deal here so far is the $250 million invested in Bharti Infratel in 2008. It also has a thriving debt financing business in operation through its non-banking finance company. Globally, the firm has $55.5 billion in assets under management and 60 portfolio companies. KKR followed other leveraged buyout peers such as Blackstone Group and Carlyle Group into India in early 2009. Its first India-related deal, though, was in 2006 when it paid $900 million to acquire the Indian information technology assets of US-based Flextronics International.

India and China, says Kravis, are critical to KKR's future. The firm started moving into emerging markets just a few years ago and growth investments, which imply taking minority stakes in companies, are now a dominant part of its investing strategy. "As economies emerge, they need something different. They need a partnership approach to improving their businesses," he says. In the week spent crisscrossing the country to  cover 31 meetings, the 67-year-old Kravis focused on building those partnerships, both with promoters of companies and government officials.

The push towards emerging markets and growth investments is also a reaction to PE's changing fortune in mature markets such as the US and Europe. Leveraged buyouts, which still make up the bulk of KKR's portfolio, had a particularly unhappy outing during the 2008-09 global economic slowdown. The value of US-based leveraged buyout investments, reportedly, declined as much as 75 per cent during that period. While the market for leveraged buyouts has been on a recovery path since, firms such as KKR see prudence in diversifying their risks to emerging markets such as India and China. Kravis did not quantify how much of the firm's current portfolio is concentrated in growth

As a minority investor, the firm has indicated that it is comfortable with a 20-30 per cent stake in investee companies, provided it is able to bring value beyond money to the table. "We probably won't do a deal if we cannot get involved in some way to improve the business," says Kravis. Its commitments in India are currently minuscule compared to its overall assets under management, but this, he says, will change soon. The firm is non-commital on an India-specific fund at this stage, though some unconfirmed media reports suggest that it may be planning a $1.5-billion fund here. In a departure from tradition, it raised its first country-specific fund in China last year with a $1-billion corpus. 

(This story was published in Businessworld Issue Dated 17-01-2011)