Warburg Pincus, one of the most prolific private equity firms in India, will invest Rs 1,080 crore (about $150 million) in Apollo Tyres Ltd as it continues to expand in the world’s fifth-largest economy.
Apollo Tyres will issue 10.8 crore compulsorily convertible preference shares to Emerald Sage Investment Ltd at Rs 100 apiece, it said in a stock-exchange filing on Wednesday. Emerald Sage is an affiliate of US-based Warburg.
The preference shares shall carry a dividend at the rate of 6.34% a year. These can be converted into 6.3 crore equity shares within 18 months at a price of Rs 171.29 apiece.
Shares of Apollo Tyres fell 3.6% to close at Rs 148.85 apiece on Wednesday in a weak Mumbai market where the benchmark BSE Sensex slipped almost 1%.
Apollo Tyres didn’t specify the size of the stake Warburg would hold in the company after the share conversion. Adding these shares to Apollo’s existing capital structure would result in a roughly 10% stake for Warburg, while Apollo’s promoter holding would dilute to about 36.9% from 40.9% at the end of December 2019. However, this would change if and when the company engages in additional capital raising, VCCircle estimates show.
The investment in Apollo Tyres, one of India’s biggest tyre makers, comes amid talk of the PE firm its first India-focussed fund with an aim to raise $1.5 billion to back companies in the financial, manufacturing and consumer sectors.
The transaction also expands Warburg’s presence in India’s manufacturing sector, after it invested big sums in financial services, logistics, real estate, renewable energy, and technology companies over the past few years.
The stake purchase in Apollo Tyres also marks the first investment for 2020, after infusing capital in five companies last year and three firms in 2018.
One of these transactions was an investment platform with the Mumbai developer Runwal Group last April. Warburg and Runwal aim to develop shopping malls with a total corpus of $1 billion (Rs 6,970 crore). Both firms would hold a 50% stake in the platform and commit an equity capital of $200 million each. The partners will raise another $600 million as debt.
Six months prior to the Runwal agreement, Warburg set-up a joint venture with Lemon Tree Hotels Ltd to invest as much as Rs 3,000 crore ($426 million) with an aim to develop full-service accommodation for students and young working professionals. Warburg Pincus holds a 68% stake in the joint venture while Lemon Tree will own 30%.
VCCircle reported nearly three months ago that Warburg is considering a bet on a co-working space provider, after betting big on co-living model by building yet another investment platform around its JV partner.
Warburg Pincus has noted in the past that businesses in the ‘sharing economy’ were likely to gain more traction in the future, according to a VCCircle analysis.
Earlier this year, the PE firm also announced a joint venture platform for developing real estate malls. Previously, it has invested in Stellar Value Chain and backed the logistics company in sealing several other deals.
Just like the investments, Warburg’s exits have also made headlines. The PE firm reaped stellar gains by selling its remaining stake in ICICI Lombard.
In 2018, the investment firm struck three exit transactions including the partial exit in ICICI Lombard. In July-August 2018, Warburg sold part of its stake in Jaipur-based AU Small Finance Bank, earning high returns. AU Small Finance Bank went public in July last year, making a strong debut on the stock markets.
In March last year, VCCircle reported that Hindustan Infralog Pvt. Ltd, a joint venture between Dubai-based DP World and the National Infrastructure Investment Fund, agreed to acquire Warburg’s 90% stake in Continental Warehousing Corporation (Nhava Seva) Ltd.