KKR's Kravis sees doors opening for deals in Japan

Reuters

By Stephen Aldred

HONG KONG, Sept 16 (Reuters) - Henry Kravis, co-founder ofprivate-equity firm KKR & Co LP, said he sees risingopportunities for dealmaking in Japan as the country's firmsopen up to foreign partnerships in response to competition fromSouth Korea and China.

KKR hopes to land more deals in the world's third biggesteconomy - where it had just 9 percent of the value of its Asianportfolio in March - as well as partner Japanese companies onmore overseas deals.

"You're going to see more and more overseas investmentswhere they see we need to put this capital outside of Japan andbuild partnerships to grow the business," Kravis, 69, toldreporters in Hong Kong in his first media briefing in Asia thisyear.

Kravis, an early pioneer of private equity investing, wasdiscussing the New York firm's Asia strategy as it begins toinvest a record $6 billion regional fund, which officiallyclosed in July.

KKR regional head Joseph Bae nominated sales of non-coreassets by giant conglomerates, cross border M&A, investment inhealthcare and retail, and potential energy-sector reform as themain themes for the firm in Japan.

"We're having a lot of conversations with Japanesecorporates about cross-border M&A. The Japanese corporates todayhave been one of the most aggressive acquirers of assets,particularly in markets like Southeast Asia," he said.

KKR was a relatively late arrival in Asia, officiallyarriving in the region in 2005, though the firm built a largeportfolio quickly. The $6 billion that KKR raised this year forAsia investments is the largest such fund ever in the region.

The firm has investments in seven Asian countries, but 50percent of its portfolio value was in South Korea and China atthe end of March.

KKR has done just one deal in Japan, an investment intemporary recruitment agency Intelligence which the firm soldearlier this year.

But resistance to foreign buyers remains a hurdle forprivate equity in Japan. Last year, for example, KKR lost out ona deal to buy chipmaker Renesas Electronics Corp whengovernment fund Innovation Network Corp of Japan (INCJ) swoopedin at the last minute.

Echoes of that failure were heard last week when Reutersreported that KKR was considering teaming up with INCJ to buy amajority stake in the healthcare assets of Panasonic Corp, a deal that could be valued at $1.5 billion, afterpreviously being reported as frontrunner for the deal.

Kravis co-founded the firm in 1976 with his cousin GeorgeRoberts and Jerry Kohlberg, who left the partnership early on,and has been travelling every year to Japan since 1978. He seesa changing dynamic there now.

"You see some shoots coming up, certain companies arebecoming more flexible, are thinking about non-core assets thatthey have," he said.

Private equity-backed M&A deals this year in Asia havefallen 32 percent to $15.8 billion compared with the same perioda year earlier, according to Thomson Reuters data, a drop blamedin part on the slowdown of China's economy.

But that slowdown, and similar hits to economies acrossAsia, also present investing opportunities.

"If the rupee continues to fall it's going to get to a levelat some point it's going to be hugely attractive to foreigninvestors, particularly to dollar investors," Kravis said.

KKR has invested in and exited China Modern Dairy HoldingsLtd and Singapore tech firm Unisteel, and remainsinvested in South Korea beer and baiju spirit maker OrientalBrewery (OB).

"Historically, George Roberts and I have always believedthat you can make your best investments when you go against thetide, when everybody is putting their head in the pillow andsaying 'Oh woe me'," Kravis said.

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