Gurgaon, India — Private equity firm Warburg Pincus LLC is investing approximately $150 million (€138 million) in "compulsorily convertible preference shares" issued by Apollo Tyres Ltd., a move Apollo management sees as a "strong vote of confidence" in its direction.
New York-based Warburg Pincus is carrying out the deal through its Emerald Sage Investment Ltd. affiliate.
The preference shares carry a dividend at the rate of 6.34% a year, and can be converted into equity shares within 18 months, according to a filing on the New Delhi Stock Exchange.
Apollo's board of directors approved the issuance on 26 Feb of an undisclosed number of preference shares for Warburg Pincus, which specialises in helping companies "formulate strategy, conceptualise and implement suitable financing structures" in partnership with the targeted companies' management.
Compulsorily convertible preference shares are defined as shares that the purchaser plans to convert into ordinary shares after a predetermined date. Converting preference shares to common shares usually is tied to the company's performance.
Apollo called the investment a "primary capital infusion" that is subject to shareholder and regulatory approvals.
Based on the number of common shares in circulation, Warburg Pincus' investment would represent about a 10% ownership stake if the preference shares are converted to common shares.
Vishal Mahadevia, managing director and head of Warburg Pincus India, said, "We see a compelling growth story in Apollo Tyres and believe the company is well-positioned to build upon the strong leadership position it has carved out within the industry.
"Warburg Pincus is excited to partner with the management team of Apollo Tyres in this journey and looks forward to supporting them during the next phase of the company's growth."
Onkar S. Kanwar, Apollo chairman and managing director, called Warburg Pincus' investment a "strong vote of confidence” in the business, management team and growth prospects.
“I believe the company will benefit from the backing of a large financial investor of their pedigree and our partnership will further strengthen Apollo Tyres' board and governance," he added.
Apollo did not disclose the number of shares issues, the terms governing their conversion into common shares or the projected use of the funding.
Apollo — the world's No. 14 tire maker with 2018 sales of $2.47 billion — recently reported lower sales and earnings for the quarter and nine months of its fiscal 2020, which ends 31 March.
For the nine months ended 31 Dec, Apollo registered a 7.2% drop in pre-tax operating income to $201.5 million on 4.2% lower sales of $1.77 billion.
Kanwar cited "sluggish" OE segment demand as a key reason for the earnings and sales declines.
Warburg Pincus has held investments in the tire industry in the past, most notably as the financial backer involved in the purchase of majority control of Israel´s Alliance Tire Co. Ltd. in 2007.