KKR bets on China slowdown, expands debt unit to HK: report

By Stephen Aldred

Financial Times

The buyout group's plans follow news that former top TPG Capital LP <TPG.UL> dealmaker Weijian Shan's PAG group raised $875 million for a distressed asset fund to invest in Asia.

PAG's fundraising and KKR's expansion come as some analysts predict that distressed and "special situations" opportunities will rise across Asia when banks and corporations seek to dispose of assets or look for capital for operations.

European banks including BNP Paribas SA <BNPP.PA>, Credit Agricole SA <CAGR.PA> and Societe Generale <SOGN.PA> are selling portfolio assets in the region as they shore up their capital bases.

Small and mid-sized enterprises (SMEs) in particular face increasing difficulties to raise capital. SMEs account for 60 percent of China's industrial output and employ 80 percent of its workforce, but are struggling to raise funds as they cope with surging costs and dwindling profits.

"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 percent yields. I don't think China will blow up, but some of the companies there will," Wilbur Ross, chairman and chief executive of U.S. turnaround investor W.L. Ross told the FT.

KKR recently established a $140 million real estate fund with Sino-Ocean Land <3377.HK>, to invest in Chinese real estate.

Asia-focused distressed debt funds have raised only 6 percent of the $197.3 billion in global capital that went into the asset class in the past seven and a half years, the FT reported, citing data from research firm Preqin.

(Reporting by Stephen Aldred; Editing by Ken Wills and Matt Driskill)

(This story was corrected in the second paragraph to show Weijian Shan is former TPG Capital dealmaker)