Kohlberg Kravis Roberts is set to expand into Hong Kong in an early bet by the US private equity group on a slowdown in the Chinese economy.
The buy-out group, which is among the largest in the world, is planning to expand into Hong Kong in the next six to nine months with its $2bn special situations unit to profit from investments into faltering and over-indebted companies.
The move comes amid increasing interest among distressed-debt investors in China. Bill Sonneborn, head of KKR Asset Management, said that the group was positioning itself for a period of more dented growth in the area. “If [large Asian economies such as China] would be slowing to half the rate of growth, that would be the equivalent of a massive recession in the US or Europe and would create opportunities to invest,†he told the Financial Times.
Wilbur Ross, chairman and chief executive of US turnround investor WL Ross, said: “There will be opportunities in China, especially in the property company sector. There’s a huge amount of property company bonds already trading at 20-30 per cent yields. I don’t think China will blow up, but some of the companies there will.â€
Asian distressed investments have seen several boom periods in the past decades, particularly in Japan and in some south-east Asian countries, but activity has died down since.
Asia-focused distressed debt funds have raised only 6 per cent of the $197.3bn in global capital that went into the asset class in the past seven and a half years, according to data from Preqin, the research firm.
The Chinese market is mainly dominated by smaller local groups such as Shoreline, which is raising a $500m fund.
One rare example of a China-focused foreign fund is US-based Avenue Capital’s $3bn vehicle, which closed in 2006 and concentrates on China, Indonesia and India. Another is Mount Kellet Capital, a $2.5bn fund raised two years ago by former Goldman Sachs partner Mark “Goldfinger†McGoldrick.
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