KKR’s Kravis sees Asean winners in US trade war

The region is the top choice for about one-third of the more than 430 American companies in China

By BLOOMBERG

SINGAPORE • KKR & Co Inc is seeking to invest more in South-East Asia, where companies are poised to benefit from the US-China trade dispute, according to the private-equity (PE) firm’s co-founder Henry Kravis (picture).

“The longer that the dispute with China and the US goes on, I think you are going to see more opportunities” for investment in Asean, Kravis said in an interview in Kuala Lumpur last week. The openings “come up where companies are saying: ‘I need to diversify my supply chain’” as a result of the trade dispute, Kravis added.

The 10-economy Asean bloc is seen as a natural magnet for new factories, thanks to low production costs and improving infrastructure.

The region is the top choice for about one-third of the more than 430 American companies in China that have moved or are considering moving production sites abroad amid the trade tensions, according to a recent survey.

KKR also sees opportunities in Asean as a result of the region’s favourable demographics, with growing wealth and migration from rural areas to the cities. The firm is especially keen on companies that address food safety issues, following successful investments in such firms in China, Kravis said.

Last year, KKR put US$250 million (RM1.03 billion) into Vietnamese condiment and instant noodle producer Masan Group, with US$150 millional located to its meat-producing business.

KKR played the food safety theme “very well in China and we expect to play the same thing here, and have been doing it with Masan in Vietnam”, Kravis said. “We plan to do that in other parts and are having conversations with different companies in the supply chain of food.”

KKR’s diversified operations allow the firm to find investment opportunities even in an environment where record Asian fund raisings have created the danger of too much capital chasing too few companies, according to Kravis. KKR raised US$9.3 billion for its third Asia fund last year.

Blackstone Group LP has about US$15 billion to deploy to real estate, PE and other opportunities in Asia.

“If we stay as a pure PE, there’s a finite number of companies that might want to sell, there’s a finite number of noncore subsidiaries of large companies that parent companies might want to dispose of. But that’s not what PE is today,” Kravis said.

Some 37% of KKR’s US$190 billion of assets under management was invested in PE at the end of March. Credit investments made up about 31% of the overall portfolio.

“We are in the position today to be able to invest anywhere in the capital structure,” Kravis said. “We are not a bank, but we can go out and raise money that mirrors what a bank would do, and we can provide senior long-term secured debt and anything below that like subordinated debt, high yield to distressed debt.”

Kravis said he’s not concerned for the moment about the effects on the US of trade tensions with China, given the strength of the American economy.

But the depreciation of the Chinese yuan and other Asian currencies may lead to inflation in the region, and higher tariffs will eventually hit the US consumer, he said.