By Stephen Aldred
HONG KONG, Sept 16 (Reuters) - Henry Kravis, co-founder of private-equity firm KKR & Co LP, said he sees rising opportunities for dealmaking in Japan as the country's firms open up to foreign partnerships in response to competition from South Korea and China.
KKR hopes to land more deals in the world's third biggest economy - where it had just 9 percent of the value of its Asian portfolio in March - as well as partner Japanese companies on more overseas deals.
"You're going to see more and more overseas investments where they see we need to put this capital outside of Japan and build partnerships to grow the business," Kravis, 69, told reporters in Hong Kong in his first media briefing in Asia this year.
Kravis, an early pioneer of private equity investing, was discussing the New York firm's Asia strategy as it begins to invest a record $6 billion regional fund, which officially closed in July.
KKR regional head Joseph Bae nominated sales of non-core assets by giant conglomerates, cross border M&A, investment in healthcare and retail, and potential energy-sector reform as the main themes for the firm in Japan.
"We're having a lot of conversations with Japanese corporates about cross-border M&A. The Japanese corporates today have 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, officially arriving in the region in 2005, though the firm built a large portfolio quickly. The $6 billion that KKR raised this year for Asia investments is the largest such fund ever in the region.
The firm has investments in seven Asian countries, but 50 percent of its portfolio value was in South Korea and China at the end of March.
KKR has done just one deal in Japan, an investment in temporary recruitment agency Intelligence which the firm sold earlier this year.
But resistance to foreign buyers remains a hurdle for private equity in Japan. Last year, for example, KKR lost out on a deal to buy chipmaker Renesas Electronics Corp when government fund Innovation Network Corp of Japan (INCJ) swooped in at the last minute.
Echoes of that failure were heard last week when Reuters reported that KKR was considering teaming up with INCJ to buy a majority stake in the healthcare assets of Panasonic Corp , a deal that could be valued at $1.5 billion, after previously being reported as frontrunner for the deal.
Kravis co-founded the firm in 1976 with his cousin George Roberts and Jerry Kohlberg, who left the partnership early on, and has been travelling every year to Japan since 1978. He sees a changing dynamic there now.
"You see some shoots coming up, certain companies are becoming more flexible, are thinking about non-core assets that they have," he said.
Private equity-backed M&A deals this year in Asia have fallen 32 percent to $15.8 billion compared with the same period a year earlier, according to Thomson Reuters data, a drop blamed in part on the slowdown of China's economy.
But that slowdown, and similar hits to economies across Asia, also present investing opportunities.
"If the rupee continues to fall it's going to get to a level at some point it's going to be hugely attractive to foreign investors, particularly to dollar investors," Kravis said.
KKR has invested in and exited China Modern Dairy Holdings Ltd and Singapore tech firm Unisteel, and remains invested in South Korea beer and baiju spirit maker Oriental Brewery (OB).
"Historically, George Roberts and I have always believed that you can make your best investments when you go against the tide, when everybody is putting their head in the pillow and saying 'Oh woe me'," Kravis said.