KKR and Singapore – a match made in heaven

By Paul Mackintosh - 29/10/12

So Kohlberg Kravis Roberts & Co is finally opening a Southeast Asia office in Singapore, its fifth in the Asia Pacific. "Singapore is at the heart of the dynamic growth that is taking place across Southeast Asia,” said KKR’s Henry Kravis in the firm’s release. We have invested more than US$1 billion in this region since 2005, and Southeast Asia is KKR's second largest investment destination in Asia after China.”

Interestingly, Ming Lu, member and regional leader of Southeast Asia and head of the new office, originally came out of the China team of CCMP Capital Asia (formerly JP Morgan Partners Asia), where he was credited by insiders with much of the business improvement success in that firm’s China investments. However, at KKR he has buffed his Southeast Asian credentials through some of the firm’s key local deals: Masan Consumer Corp. (Vietnam), MMI (Singapore) and Unisteel Technology Ltd. (Singapore). And as these deals show, KKR is no stranger to Singapore, having debuted with some of the larger engineering and technology transactions that helped bolster deal figures there in the middle of the previous decade. So this opening is just the sequel to an already well-developed story.

But wait a minute – is this the same Singapore that has been reining back growth expectations as its physical and human infrastructure begin to show signs of wear and tear, from subway breakdowns to police corruption scandals? The one where full-year growth forecasts cited in the Straits Times last month were trending down to 2.4% from earlier 3% expectations? That compares unfavourably with Indonesia’s 6.2-6.4% economic growth in the first two quarters of 2012. Is Singapore really at Southeast Asia’s dynamic heart?

Yet Singapore still forms the natural doorstep to Indonesia, now the world’s second fastest-growing economy after China, in the same way that Hong Kong used to provide the ideal springboard for outsiders targeting the Middle Kingdom. In the bad old days before 1997, Singapore was the natural destination for the proceeds of Indonesia’s oligarchs, crony capitalists and other beneficiaries of the Suharto regime. And even now, it forms an excellent shop window of Indonesia-facing assets for international investors who are still reluctant to tangle with Indonesia’s – albeit rapidly improving – legal and governance systems.

Furthermore, both KKR and Singapore have every reason to demonstrate their traction on the emerging economic powerhouses of the region, as concerns grow over the sustainability of China’s growth rate and political transition. Perhaps KKR and Singapore in fact make a very natural pairing in today’s Asia.