North America: KKR to deploy USD 600m of infra equity in 3Q18

27 July 2018 - 12:00 am UTC

Kohlberg Kravis Roberts (KKR) is due to deploy approximately USD 600m in equity across infrastructure assets throughout 3Q18, Chief Financial Officer William Janetschek said during the company’s 2Q18 earnings call held on 26 July.

“When you look at where we are today, signed but not yet closed transactions for infrastructure, looking out probably over the next three months is going to be roughly about USD 600m of equity,” Janetschek said during the call.

As previously reported, the company reached its USD 7bn hard cap for KKR Global Infrastructure Investors III, beating the 5bn target. Through the fund the company is set to acquire a 49.99% stake in French mobile operator SFR TowerCo from Altice. SFR TowerCo is a new company and will own 10,198 sites.

In the past, KKR has utilized its capital markets team to raise debt to support its infrastructure acquisitions. Of the GBP 1bn (USD 1.3bn) transaction value for the Calvin Capital acquisition, about GBP 600m of that was equity (GBP 200m from KKR Infra II, 400m syndicated to co-investors), and GBP 400m came from debt. Similarly, in its USD 3bn acquisition of QPARK, the company paid EUR 1.8bn in equity (EUR 300m from KKR II, EUR 1.5bn syndicated to co-investors), and the remaining EUR 1.2bn was paid through debt raised by the company’s capital markets division. 

The company’s executives also touched on increasing the management fees throughout its three infrastructure funds. Scott Nuttall, Co-Chief Operating Officer, said “The Infrastructure I fund had lower fee and carry than Infrastructure II and III, and so we’ve kind of earned the right to improve the economics for ourselves in that platform. And sometimes what we’ll do when we’re creating a new business is we’ll go to market with something that is a bit lower fee and carry, and then earn our way into getting to a higher outcome. And that’s really what happened with infrastructure.”

As previously reported, KKR III is expected to include a 1.2% blended management fee and 16% carry rate. Funds I & II had Janetschek noted during the call that KKR expects fund III to generate about USD 80m to the company’s management fee uplift on an annual basis, beginning once the fund reaches its final close in 3Q18. 

According to Inframation Deals, KKR infra I was 98.94% deployed as of 30 June 2018, while fund II was 83.58% deployed at the same time. The two funds generated net returns of 12.4% and 12.8%, and multiples at 1.5X and 1.1X,  as of 31 March 2018, respectively. 

As to how long the company will take to deploy that USD 7bn, Janetschek noted that it could be similar to the timeframe of KKR I & II, taking “anywhere between three to five years.”