KKR & Co. has agreed to an all-stock merger of its India lending unit KKR India Financial Services (KIFS) with InCred, a shadow bank promoted by former Deutsche Bank officials, ending nearly 10 months of negotiations, said people aware of the matter.
Why it matters: The union will help the private equity group save the struggling arm once touted as an alternative model that would be expanded across Asia but got mired in bad loans, personnel exits and rating downgrades. The move will help InCred scale up its loan book, especially in the wholesale segment, and get access to KKR’s deep financial resources.
Shareholding pattern: KKR, along with its two limited partners Teacher Retirement System of Texas and Abu Dhabi Investment Authority (ADIA), will end up owning 33-35% of the merged entity, while InCred and its promoters will own the rest, said the people cited above. For every two KIFS shares, investors will get one of InCred.
The merger will value KIFS at about Rs 6,000 crore, a fourth of its valuation in 2018.
Mumbai: KKR & Co. has agreed to an all-stock merger of its India lending unit KKR India Financial Services (KIFS) with InCred, a shadow financial institution promoted by former Deutsche Bank officers, ending almost 10 months of negotiations, mentioned folks conscious of the matter.The union will assist the non-public fairness group save the struggling arm as soon as touted instead mannequin that might be expanded throughout Asia however acquired mired in dangerous loans, personnel exits and ranking downgrades. The transfer will assist InCred scale up its mortgage ebook, particularly within the wholesale section, and get entry to KKR’s deep monetary assets.
KKR, together with its two restricted companions Teacher Retirement System of Texas and Abu Dhabi Investment Authority (ADIA), will find yourself proudly owning 33-35% of the merged entity, whereas InCred and its promoters will personal the remaining, mentioned the folks cited above. For each two KIFS shares, buyers will get considered one of InCred.
The merger will worth KIFS at about Rs 6,000 crore, a fourth of its valuation in 2018, when it had plans for a public problem.
Major particular person shareholders within the merged entity embrace InCred cofounder Bhupinder Singh, who was once a company banker at Deutsche Bank, former Deutsche Bank co-CEO Anshu Jain and Manipal Group chairman Ranjan Pai.
Other institutional buyers embrace Investcorp, Paragon Partners, Elevar Equity and Dutch improvement monetary establishment FMO. The Mumbai-based agency, which is aiming to be a full-service monetary establishment, has raised greater than Rs 1,000 crore from buyers since its 2017 inception.
InCred and KKR signed an exclusivity settlement on the proposed merger in July final 12 months. ET was the primary to report on negotiations on July 23.
KKR and InCred declined to remark.
“The new entity will be using the InCred brand name for all its business purposes. However, the KKR affiliation will help the entity with deep access to capital,” mentioned one of many individuals cited above.
KKR launched a devoted NBFC in 2009 as a part of its India-specific technique. KIFS centered on wholesale lending, together with promoter financing and mezzanine and acquisition financing, and therefore has sizable single-borrower publicity. This was a singular enterprise proposition below then India CEO Sanjay Nayar, who had headed Citigroup in India and Southeast Asia previous to becoming a member of KKR. The technique was to be expanded throughout Asia and different rising markets. Nayar is now chairman of KKR India.
The firm expanded its mortgage ebook at a compound annual progress charge (CAGR) of 35% to Rs 5,694 crore on March 31, 2019, rising to Rs 5,878 crore by the tip of the following quarter. KIFS underwrote greater than Rs 8,100 crore in financing, whereas KKR India Asset Finance, the actual property credit score enterprise, did so to the tune of Rs 4,200 crore in 2018 alone.
“Given the inherent business nature, the concentration in the portfolio remained high with the top 20 borrowers constituting 52% of the loan book,” ranking company Crisil mentioned in October 2019 whereas downgrading the corporate with detrimental implications. The downgrade was primarily attributable to deterioration of the standalone credit score profile and the resultant stress on asset high quality.
The merger is anticipated to present KKR a contemporary lease of life within the Indian credit score market, which it nonetheless considers as a “strategic and important segment.”
“The KKR problems compounded because of the IL&FS crisis and the general liquidity crisis,” mentioned one other of the individuals cited above. “At least two of the portfolio firms are facing bankruptcy proceedings under the IBC (Insolvency and Bankruptcy Code). So the deal will save them for the time being.”
Meanwhile, KKR will proceed to pursue its aggressive non-public fairness funding technique, as a part of which it has already deployed about $6 billion.
InCred will achieve entry to extra capital. “With ADIA and Texas coming on board, InCred will also benefit from a unique capital proposition,” mentioned one other particular person.
