Originally published in Nikkei Asia's “Henry Kravis: My Personal History"
Chapter 13
Oriental Brewery success in South Korea and proposing India's bankruptcy law
Asia is even more culturally different from the U.S. than Europe, which called for caution and care as we expanded our business into Asia-Pacific.
Our decision to enter Asia-Pacific can be traced back to a trip in 2005. For three weeks, I traveled with my wife, Marie-Josee, and Joseph (Joe) Bae, a young KKR employee of Korean-American descent, across Asia, making pit stops in Tokyo, Hong Kong, Shenzhen, Shanghai, Beijing and Singapore.
During our trip, we met with more than 60 banks and corporate executives. We also learned that several of our U.S. peers had tried to set up shop in Asia but failed to establish a meaningful presence for various reasons.
While this may have deterred others, it gave us greater conviction. We knew that if we wanted to be a truly global firm, we would have to be in Asia.
Joe, who is now co-CEO, put up his hand to lead our foray into Asia. He was just over 30 years old and did not have managerial experience. "You haven't even managed your children yet," I joked initially.
We could not have found a better person than Joe.
Even in his early years, Joe embodied KKR's culture. He still does. He was an excellent investor who knew how to succeed in a culturally diverse region: We would need to build a team that possessed strong local knowledge and real connectivity on the ground. As we did in Europe, we created a structure where Joe was surrounded by local experts and opened our first offices in Hong Kong, followed by Tokyo, Beijing and Sydney.
Joe was highly energetic, almost to the point that he would be overzealous and attend every meeting he could across the entire region. "You're going to kill yourself," I warned, advising him to find a way to delegate more to the team.
A memorable deal in our early days was the 2009 acquisition of Oriental Brewery, a major South Korean brewery. The deal came from the consolidation of the global beer industry and the global financial crisis of 2008. And some luck and perseverance.
In 2008, InBev of Belgium acquired Anheuser-Busch of the U.S., forming the world's largest brewer, Anheuser-Busch InBev (AB Inbev). This acquisition coincided with the historic financial crisis. Later, facing a bit of a liquidity issue, Anheuser-Busch InBev had no choice but to sell some of its profitable assets to raise funds. Oriental Brewery was one of them.
I communicated our interest in acquiring Oriental Brewery to Jorge Paulo Lemann, an old friend who was chairman of Anheuser-Busch InBev at the time, which led to a bidding contest, including with South Korean competitors.
Joe and I devised a unique proposal that would give Anheuser-Busch InBev the right to buy the company back in five years, an idea that was inspired by Jorge Paulo's desire to retain the company. We won over several bidders in 2009. In addition to providing AB Inbev the right to buy back a company we hoped to grow, the management team liked that we had certainty of financing. There were not a lot of deals getting done at that time, and our capital markets team had arranged financing so we could say for certain we could complete the deal.
Joe led the team and also supervised the company's management reforms, including heavily investing in facilities and sales operations. Oriental Brewery would rise from second to first place in the Korean market before we sold it back to Anheuser-Busch InBev for $5.8 billion and generated a five-fold return for our investors.
As we gained experience, we stayed very intrigued by investing in Asia-Pacific. We also looked to support the development of Asia's capital markets. India was a case in point. In 2014, when Indian Prime Minister Narendra Modi first visited the U.S., the two of us had the first of a number of meetings. First, I had to explain to him what KKR was, as there is a cricket team with the same acronym, KKR. Kolkata Knight Riders was (and still is) far more well-known than we are in India.
I suggested to him that one reason India did not have a broad and deep capital market was because it did not have a bankruptcy law. A bond market complementing bank loans is crucial for economic growth. Without a system to smoothly handle company defaults, investors cannot confidently purchase bonds. We later sent some materials to help aid their thinking on the topic.
In December 2015, India enacted a bankruptcy law. Prime Minister Modi is an inclusive leader who listens and acts decisively. Today, India has transformed into a global investment hotspot and is home to innovative entrepreneurs and businesses. There is a palpable sense of optimism among its young and dynamic population. We began investing in India in 2006 and have only redoubled our conviction over time. In the last four years alone, we have invested more than $8 billion in the country, more than what we had invested in the decade before.
Joe launched and grew KKR's business in Asia, making the firm one of the region's largest private equity investors. Today, our Asia business has over $75 billion in assets under management, with a team of more than 570.
Later, George and I would name Joe co-president and eventually co-CEO along with Scott Nuttall.