HONG KONG/LONDON KKR & Co L.P. (KKR.N) and Australia's Allegro Funds have agreed to buy around A$350 million ($364 million) of distressed commercial loans from a unit of Lloyds Banking Group Plc (LLOY.L), a source familiar with the matter said on Thursday.
The deal is the latest in a series of portfolio loan sales struck in Asia, as tough new capital requirements force European lenders to retreat from the region and focus on their home markets.
Cashed-up private equity funds and some Japanese lenders have been using the opportunity to buy these loans, which are often sold at a deep discount to their face value.
Many of the loans were extended before the global financial crisis and then went bad.
In the latest deal, Lloyds' Australian unit, BOS International, sold the loan portfolio, from a mix of sectors, at a discount of around 50 percent, the source added.
Earlier, KKR and Allegro said in a statement that they had agreed to buy a portfolio of commercial loans from a unit of the British lender, without disclosing details.
The source declined to be identified as details of the sale were not made public.
Part-nationalized Lloyds inherited the assets when it acquired HBOS in 2008, including the Bank of Scotland and its international unit, BOS International. It has been offloading loan portfolios as part of a plan to wind down non-core assets.
Lloyds, which was bailed out by Britain during the 2008 crisis, shed 30.7 billion pounds worth of non-core assets from its balance sheet in the first nine months of the year.
That was on top of a 53 billion pound reduction last year and left it with a non-core portfolio worth 110 billion pounds.
European lenders have been retreating from the Australian loan market to free up funds.
Lloyds sold $1.2 billion of distressed Australia property loans in June to Morgan Stanley (MS.N) and Blackstone Group (BX.N) following an A$1.7 billion disposal last November to Morgan Stanley and Goldman Sachs (GS.N).
At the end of June it still held Australian assets worth 7.7 billion pounds.
UK banks are under pressure from regulators to bolster their capital buffers to protect themselves against any worsening of the euro zone debt crisis and to avoid having capital deficits when tougher new Basel III capital rules are applied.
"While we do not anticipate the need for rights issues to close these gaps, banks may be under pressure to sell additional assets at prices that may not be in the best interest of shareholders," said Shore Capital analyst Gary Cooper.
The Financial Times reported on Thursday that Lloyds is attempting to sell stakes in a clutch of housebuilders and the bank is also rumored to be considering a sale of its 60 percent stake in wealth manager St James's Place (SJP.L).
Meanwhile, rival RBS (RBS.L) has faced calls for it to dispose of its U.S. business, Citizens.
Shares in Lloyds were down 0.5 percent to 44.25 pence at 1245 GMT, meaning taxpayers are currently sitting on a loss of 6 billion pounds on the 20 billion pumped in by Britain to keep it afloat.
Global private equity firms are gearing up to raise credit funds to tap the investment opportunities created as banks de-leverage, including loan portfolios.
KKR made the acquisition through its special situations business, which was set up in 2010 and which invests from a $2 billion global fund.
KRR's team was established at the end of 2009 and has made several investments in Asia.
Allegro is an Australian fund manager which invests primarily in mid-market Australian and New Zealand businesses and which has $300 million in committed capital. ($1 = 0.9607 Australian dollars) (Reporting by Stephen Aldred; Editing by Ken Wills and David Cowell)