Private equity firm KKR has completed the merger of one of its Indian non-banking finance companies, KKR India Financial Services Ltd, with InCred Financial Services Ltd after the shadow lender racked up massive losses.
KKR and InCred, a non-bank lender founded by Bhupinder Singh, former head of investment banking at Deutsche Bank Asia-Pacific, had proposed the merger in 2020 and finalised the deal in August last year.
The companies said that the combined business will operate under the InCred Finance brand name. It will have a balance sheet of $600 million and an equity base of about $300 million. Singh will lead the combined group.
“InCred Finance’s business has emerged in great shape from the pandemic delivering top notch risk performance. The strategic partnership with KKR significantly accelerates our ability to deliver our class leading offerings at a large scale and to capitalise on the enormous credit opportunity in India,” said Singh.
KKR and InCred didn’t disclose any financial details of the merger. But InCred shareholders likely hold a stake of around 65% in the combined entity. KKR and its co-investors, including Abu Dhabi Investment Authority, which had invested in KKR India Financial four years ago, will retain 35%.
InCred Finance is backed by investors such as Investcorp, OAKS, Moore Capital, Elevar Equity, Paragon Partners, former Deutsche Bank executive Anshu Jain, Manipal Group’s Ranjan Pai, and Gaurav Dalmia.
The merger marks the culmination of KKR’s efforts to salvage its India NBFC after the non-bank lender sank into deep losses due to soured loans. KKR India Financial suffered after a crisis in India’s NBFC industry in late 2018 led to defaults by many corporate clients, worsened its asset quality and forced it to write off several loans.
This prompted the private equity giant to initially decide on injecting additional capital into the NBFC. But KKR later signed a deal to merge the shadow lender with InCred.
KKR India Financial’s gross non-performing assets ratio was at 11.92% as on December 31, 2021, and net NPA ratio was at 3.21%. The company wrote off several stressed accounts, leading to a drop in its loan book to Rs 1,003.4 crore as of December 31, 2021 from Rs 3,355 crore as on March 31, 2020 and Rs 5,694 crore as of March 31, 2019.
InCred was founded in 2016. The company operates across consumer lending, small business lending and education finance. It has a loan book of about $500 million, or about Rs 4,000 crore.