KKR, fresh from its low-key Dutch listing after merging with its Amsterdam-listed European fund, is quietly and steadily stepping up its Chinese shopping activities.
The US buyout firm is expected to announce later on Wednesday a $160m investment in a Chinese lender to small and medium-size businesses, according to the Wall Street Journal.
KKR, in league with Singaporean state investment agency the Government of Singapore Investment Corp and Chinese investment bank China International Capital Corp, has taken a roughly 30 per cent stake in International Far Eastern Leasing Co, a financial leasing firm controlled by Chinese state-owned conglomerate Sinochem Group, said the Journal, adding that KKR’s portion of the investment is around $100m.
The deal would be KKR’s third in mainland China since it opened its Asian regional office in 2005, and is of a similarly modest size to the preceding transactions — a $115m investment in Henan-based Tianrui Group Cement Co in 2007 and an investment announced in June of around $150m in Ma Anshan Modern Farming, a milk supplier.
All very modest, indeed, compared with some of the other deals KKR’s Asian office has been handling — not least, the region’s biggest LBO this year, the $1.8bn acquisition in May of AB InBev’s Oriental Brewery Co, South Korea’s number two brewer — and the subsequent off-loading just weeks later of half its equity in that deal to Affinity Equity Partners.
Not only that. As Lex recently noted, even the Oriental Brewery deal — KKR’s biggest this year — is a speck of dust compared with the 2007 purchases of Alliance Boots for £11.1bn and Texas utility TXU for $44bn.
While KKR seems anxious to establish some sort of foothold in China, it is either unable or unwilling to find substantial deals and is treading very lightly with its mainland M&A strategy. This, despite the estimate by KKR’s Middle East head, Makram Azar, who told Bloomberg this week that the firm has $15bn in funds to spend on acquisitions.
Still, leasing firms are an attractive vehicle for lending to Chinese small and medium-size enterprises, “because they ensure that the lender receives collateral on loans through sale and lease-back agreements”, noted the Journal. Not only that, it explains, but much of the financial-leasing industry was built through joint ventures with foreign partners to finance trade, so it faces fewer restrictions on foreign investors than the banking sector.
However, despite KKR’s growing involvement in arranging IPOs and its step towards a coveted New York listing through the Dutch listing, the firm’s bread and butter – as Lex concludes – remains private equity; and Henry Kravis and George Roberts “have much to prove to investors expectant of a return to the swashbuckling deal closing days”.
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