KKR says retrenching banks boost direct lending demand in Asia

[HONG KONG] KKR & Co, Asia's largest private equity investor, says the region's entrepreneurs are seeking more direct loans as the coronavirus pandemic dries up other avenues of funding.

More opportunities to lend are emerging particularly in South-east Asia, where some governments have fallen short in supporting companies hit by Covid-19, according to Brian Dillard, who oversees credit for Asia Pacific. Under Mr Dillard, KKR has lent north of US$1 billion over the past year. The firm is now preparing to raise its first dedicated credit fund for the region, people familiar with the matter said, declining to be identified as discussions aren't public.

Private credit, which bypasses traditional lending channels, is still nascent in Asia even as it's ballooned globally into an US$850 billion asset class dominated by US deals. Fuelled by a thirst for yield, the sector has gained fresh impetus from the pandemic with borrowers looking for speedier access to cash at a time when banks have grown cautious. Asia represents an enormous opportunity, Mr Dillard said, with returns several hundred basis points above what's on offer in the competitive US and European markets.

"The Covid crisis has caused many traditional lenders to retrench, and we are finding our private credit capital is more relevant to a wider group," said Mr Dillard, who moved to Hong Kong in 2018 after ramping up KKR's alternative credit and special situations businesses in New York. "The companies are healthy, the growth opportunities are still there, what they're missing is the capital."

Vietnam, Malaysia and Indonesia have seen the most activity, Mr Dillard said, with a rising middle class spurring growth for businesses in property, healthcare and other consumer-focused areas. He's hired former executives at Goldman Sachs Group, Credit Suisse Group and DE Shaw & Co to expand the firm's footprint in India, South-east Asia and Australia.

While much Asia-focused capital has targeted distressed companies, KKR is keen on performing credit, backing acquisitions and helping families take their companies private. The firm seeks a mid-teens internal rate of return, Mr Dillard said.

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Despite the opportunities, KKR has suffered setbacks in India, where a long-running shadow banking crisis followed by the devastation of the pandemic has crippled the economy. The firm committed to a US$150 million equity infusion to support the local unit and is now weighing a merger with InCred Financial Services, backed by former Deutsche Bank co-chief executive officer Anshu Jain.

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