Private equity major KKR & Co, which has already invested over $1 billion of capital in the Philippines, continues to see long-term investment opportunities in the country amidst the global coronavirus pandemic.
“The Philippines is an attractive and important market for KKR. We see plenty of long-term investment opportunities driven by the country’s young, dynamic population and high-growth across key sectors,” Neal Kok, Director in KKR’s Asia Private Equity team, told DealStreetAsia.
KKR’s investments in the Philippines represent 3 per cent of the firm’s total assets under management in Asia, Kok added.
KKR made two major investments in the country during the global healthcare crisis. It acquired an 11.9 per cent in listed Philippine power developer First Gen Corp for $192.2 million in June this year.
Further deepening its foothold in the infrastructure space, KKR acquired an undisclosed stake in Pinnacle Towers, a telecom builder and operator, through its infrastructure fund in November.
“There remains a significant funding gap for infrastructure in the Philippines and KKR sees a significant opportunity to step in and provide capital to help fill this gap,” Kok said.
The PE giant marked its debut investment in the Philippines in 2018 when it joined China’s Tencent Holdings in acquiring a minority stake in tech company Voyager Innovations, whose flagship product is digital payment platform PayMaya, for $175 million.
KKR and Tencent’s investment was the largest in a Philippine technology company back then. The investment was funded from the $9.3-billion KKR Asian Fund III.
In April 2020, KKR and Tencent again backed Voyager’s $120-million fundraising. At that time, the International Finance Corporation (IFC) and the IFC Emerging Asia Fund came in as new investors in the payment’s firm.
“The Philippines’ rising middle class, newly urban populations, and the fast-growing millennial generation are all driving increased demand for higher-quality goods and services. Our investment in Voyager, which is seeking to provide seamless digital payment and financial inclusivity across the country, is one good example of this,” Kok said.
KKR’s second investment in the Philippines was in Metro Pacific Hospitals, the hospital unit of Metro Pacific Investments Corp. The PE firm led a consortium that acquired a 42.5-per cent stake in the hospital group for about $684.5 million in 2019.
Undeterred by impact of COVID-19
The COVID-19 pandemic has certainly altered the dynamics of investment in markets globally, including the Philippines, said Michael De Guzman, managing director for KKR’s Asia Pacific Infrastructure team.
“We’ve of course seen impacts stemming from the varying stages of shutdowns during the pandemic. However, we are a strong believer in the resilience of the Philippines’ growth story and its people. We are not deterred by the short-term impact of COVID-19,” De Guzman told DealStreetAsia.
The Philippines may be a small market for PE investing but there has been a noticeable increase in the interest of global and regional buyout funds in this market, even as the number of opportunities is limited.
Aside from KKR, other global funds such as Blackstone and Warburg Pincus have announced investments in the Philippines. CVC, GIC, and Capital International have also earlier invested in the country.
In addition to having a young, dynamic population and high-growth across key sectors, the Philippines is also home to a number of fast-growing companies that are seeking opportunities to consolidate existing business lines or expand into new sectors, verticals, and markets.
Kok said KKR is not looking at specific industries in the Philippines although he identified a few themes the PE firm is now focusing on in the country and Asia. These include digital transformation and data usage, infrastructure, consumption upgrades, and partnering with large-family owned businesses.
Digital transformation and data usage are themes KKR has been backing for some time. COVID-19, Kok added, has only accelerated the trends and needs around digitalisation and digital infrastructure.
KKR’s $13b Asia-focused fund
KKR has so far raised approximately $13 billion for its fourth Asia-focused buyout fund, which is already a record figure and the largest pan-Asia PE fund in the world.
The amount is more than the $12.5-billion reported target for the fund. In July, KKR Asia Fund IV raised $11 billion to surpass the record $10.6 billion raised by Hillhouse Capital Group for Asia in 2018.
The latest Asia-focused fund will add to the record $388 billion of PE dry powder in Asia, as of March 2020. According to a Bain & Co report earlier cited by Bloomberg, more than 3,000 PE firms are jostling to find opportunities in Asia.
KKR, however, declined to say how much of the said corpus will be allocated to the Philippines. De Guzman said the PE firm is encouraged by the Philippine government’s reform programme focused on improving the investment climate by maintaining low inflation, strong levels of foreign reserves, and a stable currency.
“These types of measures build confidence for large global investors like KKR to invest in the Philippines,” he stressed.
De Guzman also noted a growing consensus in the global investment community that thoughtful stakeholder engagement and management of environmental, social, and governance (ESG) issues are smart business decisions and critical to smart investing.
“So we urge the government to continue its focus on ESG to further build investors’ confidence in the Philippines and strengthen its position as an attractive destination for international investors,” he added.