Workmen install a poster onto a wall surrounding a construction site in the new business district of Binhai, on the outskirts of Tianjin, China, in this March 2, 2011 file photo. Chinese property companies are now on the radar of U.S. buyout specialists, such as KKR and Wilbur Ross.DAVID GRAY
Kohlberg Kravis Roberts is set to expand into Hong Kong in an early bet by the U.S. 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 $2-billion 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 U.S. or Europe and would create opportunities to invest," he told the Financial Times.
Wilbur Ross, chairman and chief executive of U.S. 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."
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 $197.3-billion 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 $500-million fund.
One rare example of a China-focused foreign fund is U.S.-based Avenue Capital's $3-billion vehicle, which closed in 2006 and concentrates on China, Indonesia and India. Another is Mount Kellet Capital, a $2.5-billion fund raised two years ago by former Goldman Sachs partner Mark "Goldfinger" McGoldrick.