KKR looking to up its NBFC play, not in a hurry yet: CEO Nayar

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Mumbai | Published: November 14, 2018 1:47:17 AM

Given that non-banking financial company (NBFC) valuations have taken a hit, KKR is looking at upping its play in the sector, although the private equity firm is not in a hurry yet, KKR India CEO Sanjay Nayar told reporters on the sidelines of CII’s private equity and venture capital summit on Tuesday.

KKR India’s portfolio includes Avendus Capital, Max Financial Services, SBI Life Insurance, Radiant Life Care, Coffee Day Resorts, Emerald Media and Bharti Infratel, according to its website

Given that non-banking financial company (NBFC) valuations have taken a hit, KKR is looking at upping its play in the sector, although the private equity firm is not in a hurry yet, KKR India CEO Sanjay Nayar told reporters on the sidelines of CII’s private equity and venture capital summit on Tuesday.
“We will be looking out because we are highly under-leveraged. We have a lot of equity available. But I don’t think we will be doing something in a hurry because things are still sorting themselves out. But yes, we will be absolutely open to that. We are looking out,” Nayar said.

KKR India’s portfolio includes Avendus Capital, Max Financial Services, SBI Life Insurance, Radiant Life Care, Coffee Day Resorts, Emerald Media and Bharti Infratel, according to its website.
Nayar further said the NBFC sector is a critical one and is providing considerable alternate capital to a lot of areas that go beyond the traditional asset based businesses like vehicles or construction equipment.

“There is a part of NBFCs that does large structured lending which the banks cannot do. It is a very critical segment. It also has given a lot of financing to infrastructure. What you are seeing right now is a little bit of a liquidity issue that is emerging depending on how the NBFCs have funded their own liability side of the balancesheet.

“They have funded it through long-term debt, that’s one thing; if they have taken a short-term debt, that’s becoming a bit of an issue. That will probably get sorted in the next three-four months. I have a feeling that good NBFCs will get an ability to get fresh funding,” he said.

Nayar also believes that certain things will change after this phase of uncertainty gets over for NBFCs. “One is that the kind of capital structure that NBFCs will run will have to mirror the kind of assets they have. There is no point having long-term assets funded through shorts; that is gone. I think the leverage ratio, overtime, has to become a lot more prudent,” he said.

The KKR India CEO also pointed out NBFCs that do well will be large in size, well-managed, have a diversified set of assets and have really good long term shareholders behind it.
“I think the liquidity issue will sort out pretty quickly. I do think that now that they are more conscious about margins, the NBFCs will have to price things the right way. People will take a much keener interest to understand what is the security that they are taking against the assets. You cannot play the game of higher return on equity (RoE) by leveraging your capital structure,” Nayar said.

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