Mumbai: KKR Financial Holdings Inc. an affiliate of buyout firm Kohlberg Kravis Roberts & Co., will raise $500 million through sale of common stock and a rights issue.

KKR Financial said it plans to sell 16,000,000 common shares to seven unaffiliated institutional investors, including San Francisco-based Farallon Capital Management LLC and New York-based Morgan Stanley, at $14.40 each, for a total of $230.4 million.

The San Francisco-based company will raise an additional $270 million through a rights offering to shareholders. Proceeds will be used for general corporate purposes.

KKR Financial last week told investors that it sold $5.1 billion in mortgage loans for a loss of $40 million and may have more losses as prices fall on bonds linked to US home loans.

Chief executive Saturnino Fanlo said on a conference call after the sale that the firm has $452 million in cash and other sources and plans to divest the rest of its residential mortgage-backed securities.

KKR, based in New York, raised $800 million in the KKR Financial initial public offering in June 2005. KKR Financial, created as a real estate investment trust, changed its structure in May to a limited liability corporation that makes credit investments. The firm has about $18 billion in assets.

KKR Financial Holdings LLC is a specialty finance company that invests in multiple asset classes. KKR Financial Holdings LLC is externally managed by KKR Financial Advisors LLC, both affiliates of Kohlberg Kravis Roberts & Co. L.P.