Apollo/Cooper deal expected to proceed despite investment law change
Apollo Tyres does not anticipate that alterations to India’s overseas investment regulations will influence its plans to acquire Cooper Tire & Rubber. On 14 August, the Reserve Bank of India (RBI) reduced the limit for overseas direct investment; with immediate effect the limit for overseas direct investment must be no more than 100 per cent of the Indian purchasing company’s net worth. The RBI will decide upon any overseas direct investment exceeding the 100 per cent limit on a case-by-case basis.
Ronojoy Banerjee, reporter for Indian financial channel CNBC-TV, shared on 19 August that he has spoken with Apollo management and analysts, and was told the change in policy is not expected to affect the company’s US$2.5 billion acquisition of Cooper Tire & Rubber.
“Any proposal for which documentation under the FEMA (Foreign Exchange Management Act) have already been completed prior to 14 August, when the RBI notification came out, will be safe,” Banerjee commented. “More importantly, as far as Apollo Tyres is concerned, they have only raised about $450 million on their own books. The remaining $2.1 billion is going to be on the books of Cooper Tires. So, even as per the RBI notification they would not require any approval from the RBI.
“Both Cooper Tire and analysts believe it will not have any impact, and they’re expecting the deal to go through in about two months’ time, because at this point in time they are awaiting statutory approvals from various authorities,” Banerjee added.
Prior to the 14 August notification, the provisions of India’s Foreign Exchange Management Act, 1999 allowed the total overseas direct investment of an Indian company in all its joint ventures and/or wholly owned subsidiaries to reach up to 400 per cent of the firm’s net worth.