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KKR-backed Pepper to collect foreign investors' bad debt in Japan

Australian company looks to help struggling businesses amid pandemic

Pepper Group has acquired Tokyo-based collection agency MC Group as it seeks to revive local businesses suffering under excessive debt loads. (Photo by Hirofumi Yamamoto)

TOKYO -- Australia's Pepper Group, owned by U.S. private equity giant KKR, will begin targeting nonperforming loans in Japan as the pandemic continues to wallop businesses, Nikkei has learned.

Pepper Group has already acquired Tokyo-based collection agency MC Group and will be entrusted with the collection of receivables that foreign funds have invested in through the local servicer. The company aims to help revive local businesses suffering under excessive debt loads amid the pandemic.

When foreign investors take on nonperforming loans in Japan, MC Group will take charge of coordinating with the financial institutions that sell the loans, as well as managing and collecting the loans.

Pepper Group acts as a servicer in Australia, Europe and Asia. As of September, the company's total assets in custody stood at about 83 billion Australian dollars ($64.58 billion). KKR acquired the company in 2017.

Europe and North America have seen an emergence of large-scale funds that invest in nonperforming loans as the pandemic deals blow after blow to businesses. Pepper is aiming to lure foreign investment to Japan's nonperforming loan market by leveraging its global customer base.

Sellers of nonperforming loans are expected to include regional banks and shinkin, specialized financial institutions that service medium-size and small companies. As a result of taking advantage of emergency lending, many companies are now overburdened by loans, a certain percentage of which are expected to become nonperforming.

A financial institution can recover part of a sour loan by selling it on to investors. This also allows it to record a loss, which brings tax benefits.

After the SME Finance Facilitation Act ended in 2013, regional banks began giving repayment moratoriums to struggling clients. If more of these lenders, many of which are struggling themselves, restructure or merge, the number of nonperforming loan disposals is likely to increase.

Domestic investment in nonperforming loans took off in the late 1990s, years after Japan's bubble economy imploded. At the time, foreign funds were largely criticized as "vultures" for buying nonperforming loans at low prices and making off with fat profits by selling these assets a short time later.

But these funds retreated from the business as investment opportunities waned. Now funds that invest in nonperforming loans are shifting their focus to corporate revitalization, and cooperate with financial institutions and management.

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