KKR special team eyes Asia-Pacific opportunities

KKR believes the fallout from the novel coronavirus pandemic is creating buying opportunities in the Asia-Pacific Picture: AP

Private equity firm Kohlberg Kravis Roberts is believed to have set up a special team to examine distressed acquisition opportunities in the Asia-Pacific, as some high-quality companies get brought to their knees over COVID-19 disruptions.

KKR executives are said to be currently distracted with their own coronavirus-related challenges for the companies within the private equity firm’s funds.

By having a separate team devoted to looking at the opportunities, they can offer their full attention without distractions.

KKR in Australia recently weighed an investment into the struggling listed online travel website Webjet, brought to its knees over travel restrictions introduced to stop the spread of COVID-19.

Webjet was eventually recapitalised through an equity raising, which was supported by KKR’s rival, Bain Capital.

Sources say the focus is on distressed companies in Asia tightly held by tycoons in the region, offering assistance through a private investment, although such opportunities are not obvious in Australia.

One possibility for KKR here that fits that description could be an investment in Seven West Media, which is laden with debt, although billionaire backer Kerry Stokes is not thought to have a strong appetite for working with private equity.

KKR and the Carlyle Group have both worked with Mr Stokes on deals before, including an investment with Carlyle in Coates Hire, but the thinking is that they eventually opted to part company, given they have different objectives.

Buyout funds also do not have free-to-air broadcasters at the top of their wish lists due to the digital disruption the broadcasters face.

The big question mark hanging over Seven West Media is whether Seven Group Holdings, which controls about 40 per cent of the business and is about 60 per cent-owned by the Stokes family, offers a lifeline with more equity, potentially through an equity raising.

Mr Stokes, who is chairman, and his son, Ryan, who is chief executive, have continued to reinforce to Seven Group shareholders that they would not inject further capital into the struggling free-to-air broadcaster.

The future of Seven West no doubt centres on the view as to whether the advertising market will rebound by the third quarter of this year to once again provide reasonable cash flow, despite the company’s costs being low without the Olympics and AFL payments and some production halted.

Seven West’s lenders may also be eager to offer the company somewhat of a reprieve in an effort to preserve its relationship with the Stokes family, to whom they may lend for other investments such as Seven Group.

On KKR, other opportunities could emerge in Australia as the full impact from the COVID-19 disruptions are experienced.

Last year, private equity across all asset classes had $US2.5 trillion of dry powder to spend, including $US850bn earmarked for buyouts alone.

KKR said in a Wall Street Journal report this week that economic disruption from the coronavirus pandemic was undermining the value of its business as well as its funds and portfolio companies, and widespread damage could affect its results for all of this year.

But despite the strains created by the pandemic, KKR said it had “adequate liquidity,” with about $US2.5bn ($3.95bn) in cash and short-term investments at the end of last month.

The pandemic’s continuing effects could produce “attractive investment opportunities”, although KKR added it may not be able to complete those investments because of market turmoil. The firm also had access to a $US1bn revolving line of credit that was untapped.

The statement came out as KKR launched a debt sale expected to raise about $US250m for the firm at a yield of just under 4 per cent.

Future fundraising efforts could be hampered from the pandemic, KKR said, and could impede buyouts and other investments, as well as realisations through asset sales or public stock offerings.