KKR Exploring Options for Its Indian Realty Credit Platform

KKR is exploring strategic options, including bringing in a new investor or a group of investors, in its Indian real estate lending platform KKR India Asset Finance Ltd (KIAFL), said two people aware of the development. The US private equity investor had set up the non-bank in 2015 along with co-investors, including Singapore’s sovereign GIC. KKR’s move comes at a time that the real estate sector is seeing tailwinds after a prolonged difficult spell that started with the Infrastructure Leasing and Financial Services (IL&FS) crisis in 2018, and was followed by the covid-19 pandemic. With the vaccination drive now covering the majority of Indians, the declining number of covid cases in the country, and staff of many companies returning to offices, the outlook for commercial real estate is looking healthy, though concerns over a new variant could still play spoilsport. On the other hand, a low interest rate regime, coupled with government support, has seen residential real estate make a strong comeback. “This is being done because, as set out at the time of KIAFL’s establishment in 2015, the investors’ objective was to evaluate the strategic options of their investment by 2022, which was the agreed term of the fund," said one of the people mentioned above on the condition of anonymity. “Despite the challenging market conditions for real estate non-banking financial companies (NBFCs) in recent years, KIAFL has maintained a healthy growth and keep non-performing assets low. The company has focused on affordable/mid-income residential and commercial real estate projects and has observed a CAGR of about 20% on its loan books in the past four years," he said. CAGR is compound annual growth rate. The plans could see some of the co-investors sell part of their stakes in the NBFC, said the other person mentioned above. “Compared to other NBFCs, KIAFL has low leverage, less than one time on a net basis. It has a AA stable credit rating from Crisil and a liquidity position of over $140 million. Considering these factors and the buoyant capital market conditions, the investors think it is an opportune time to evaluate strategic alternatives, including a further capital raise that will enable the company to accelerate its growth trajectory," he said. Given the recent tough macroeconomic conditions, the NBFC has seen its loan book reduce to ?3,424 crore as of 31 March 2021, from ?3,971 crore on 31 March 2020, a decrease of 13.75%, noted Crisil in a rating report dated 13 August. “The concentration in the portfolio remained high with the top 10 borrower groups constituting around 71% of the loan book as on 31 March 2021. This was also reflected in the asset quality metrics with slippage of one account resulting in reported GNPA increasing to 6.79% as on 31 March 2021 (Nil as on 31 March 2020). The collection efficiency of the company (after including prepayments which are inherent to this asset class) for April 2021 and May 2021 stood at 193% and 212%, respectively," the report added.