New York-based Warburg Pincus is investing in “compulsorily convertible preference shares” issued by India’s Apollo Tyres. 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 is usually tied to the company’s performance.
While Apollo called the US$150 million-investment a “primary capital infusion,” pending shareholder and regulatory approvals, Warburg Pincus’ investment could represent about a 10% ownership stake in the tyre company if the preference shares are converted to common shares.At present, the preference shares carry a dividend at the rate of 6.34% a year, and can be converted into equity shares within 18 months.
Private equity firm Warburg Pincus specialises in helping target companies “formulate strategy, conceptualise and implement suitable financing structures” in partnership with the companies’ management.The firm believes Apollo Tyres has “a compelling growth story” and strong leadership – it is excited to partner with and support the management of Apollo Tyres, according to Vishal Mahadevia, Managing director and Head of Warburg Pincus India.
Meanwhile, Apollo Chairman Onkar S. Kanwar said Warburg Pincus’ investment represents 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’s board of directors approved the issuance of an undisclosed number of preference shares for Warburg Pincusin late February; it also did not disclose the terms governing their conversion into common shares or the projected use of the funding.