KKR Euronext in Japanese PIPE deal

KKR’s Euronext-traded affiliate has invested $167.4 million in convertible preferred stock of Japanese credit card firm Orient. It is the publicly traded vehicle’s second PIPE.

KKR Private Equity Investors, the Amsterdam-listed fund affiliated with Kohlberg Kravis Roberts, has invested ¥20 billion ($167.4 million) in convertible preferred stock of Orient Corporation, a Japanese consumer credit company. The firm, commonly called Orico, is being bailed out by a consortium of investors led by Mizuho Financial Group.

The deal, announced last month, is the US private equity firm’s first investment in Japan. KKR is currently raising its first Asia-focused fund with a $4 billion target.

KPE’s Orico stock is convertible starting in November 2010. The investment represents approximately 4.5 percent of the company’s stock on a fully diluted basis based on the initial conversion price. That price, KPE said, “is 90 percent of the average market price of Orico common stock on the Tokyo Stock Exchange during a specified period prior to Orico’s announcement of its restructuring plan in Japan on March 28, 2007 (multiplied by two to reflect the reverse stock split by Orico scheduled for June 4, 2007)”.

The conversion price, it added, “is subject to a semi-annual downward-only ratchet adjustment to 90 percent of the then-market price of Orico common stock, but not less than approximately 52.4 percent of the initial conversion price”.

For KPE, this is its second such private investment in a public entity (PIPE). In January, the fund invested $350 million in convertible senior notes of server and software provider Sun Microsystems.

KPE is characterising these deals as “negotiated equity investments”, which it defines as “investments which are significantly negotiated by KKR and involve the issuance of equity or equity-linked securities to or on behalf of KPE”. Negotiated equity investments fall into the category of co-investments, KPE said in a statement.