How 'transformational deals' can solve infra, aviation woes

Sanjay Nayar, CEO of private equity major Kohlberg Kravis Roberts (KKR) in India sees more non-core divestitures by Indian businesses in the coming days as companies and promoters become more focused on capital efficiency and reduce their debt burden.

Alongside, there will also be “significant majority stakes” being given in some businesses as entrepreneurs seek private equity help in scaling up and growing businesses.

In an interview with Entrepreneur magazine, Nayar, who earlier headed Citibank in India, said there would also be ’transformational deals’ to set problems right.

“We are also hopeful of seeing some transformational deals, where good businesses have run into trouble because of wrong capital structures - like what we are observing with hotels, infrastructure and aviation. These sectors are the key to changing the demographics of India,” Nayar said.

He said, if one assumed that growth would pick up again in India, companies and promoters would become more focused on efficiencies and return on capital and therefore concentrate on getting rid of non-core businesses to streamline their balance sheets. They would want to stick to core businesses and shed what they see as non-core. Some businesses, he said, would also want to invite strategic partners and private equity firms would play a key role in such cases.

“I think a couple of businesses will want to invite strategic partners from Japan and the West to pick up stakes in them and again PE can be quite helpful there. So we should see some cross-border and local M&A action,” Nayar said.

Nayar said KKR as a firm was positive on the India growth story and believed in India’s strong long-term growth potential. “We will stay focused on the development of our investee companies, meeting our stakeholders, and try and develop deals.”

Praising Finance Minister Palaniappan Chidambaram’s efforts at reining in the fiscal deficit, Nayar said for the past three-four years he had been ‘realistic to bearish’ because there had been no concrete action to correct the country’s structural deficit.

“He [Chidambaram> wants to have a very keen eye on how to bridge the current account deficit on a sustainable basis. The Ministry of Finance and Finance Minister are very focused on creating an environment where foreign investments can come in and finance the current account deficit. 2013 is expected to be much better in terms of FII inflows,” Nayar said, adding that looking at the macro picture, he was getting more bullish than earlier.

Global PE giant KKR has been active in India since 2008-09 and also has a non-banking financial company, KKR India Financial Services, to complement its private equity business in the country.

(For the full interview with Sanjay Nayar, read the May 2013 issue of Entrepreneur magazine, now on stands. The writer is Editor-in-Chief of Entrepreneur)