| NEW YORK
NEW YORK Aug 27 An emerging market one-two
punch threatens to derail a $2.5 billion debt financing package
backing the acquisition of U.S.-based Cooper Tire & Rubber Co
by India's Apollo Tyres Ltd, sources told
Thomson Reuters LPC.
The Cooper acquisition, which would make Apollo the world's
seventh-largest tire maker, could be stumbling amid India's
declining currency and a workers' strike in China, according to
"There are a lot of issues, Chinese issues, Indian rupee
issues," a loan investor said. "If you are a credit investor
you'd probably be worried about buying the debt."
India's ailing currency is a concern, investors said. Amid
fears that the amount of cash flowing into world markets from
the U.S will tighten, emerging markets' currencies have suffered
The Indian rupee has lost almost 15 percent of its value
against the U.S. dollar since June 12 when the Cooper
acquisition was first announced.
An ongoing employee strike at Cooper constitutes another
hurdle, according to investors.
A group of 5,000 workers of Cooper Chengshan (Shandong), a
Cooper Tire joint venture with China's Chengshan Group in
Rongcheng City, went on strike on June 21 to oppose the deal.
The union, via a paid advertisement in the Wall Street Journal,
recently said the interests of the employees will be
significantly damaged by a merger with Apollo.
"Apollo is confident that the issues Cooper is addressing
with its facility in Rongcheng, China will be resolved," a
spokesman for Apollo said in an email. "Apollo is committed to
successfully completing this compelling strategic transaction
with Cooper, which remains on track."
Backing the Cooper Tire acquisition is $2.5 billion in new
debt at the Cooper level. The amount includes $450 million in
recourse loans at the Apollo level and $1.8 billion of
non-recourse at the Cooper level.
Around $1.8 billion of the non-recourse portion of the
financing is likely to come from a bond fundraising, while
another $300 million will be through an asset-based lending
The financing is scheduled to launch to syndication as early
Deutsche Bank, Goldman Sachs, Morgan Stanley and Standard
Chartered Bank are joint lead arrangers and joint bookrunners on
the Cooper portion, while Standard Chartered is sole underwriter
of the $450 million recourse loan on the Apollo side. The
recourse borrowing marks Apollo's debut in the international
Apart from these ongoing challenges, the Cooper Tire
acquisition could have faced additional regulatory hurdles if
the deal had not been announced before August 14.
In an attempt to curb the decline in the Indian rupee, the
Reserve Bank of India announced changes to rules relating to
overseas direct investments by Indian companies earlier this
month that could make it harder for Indian firms to buy foreign
The new rules require an Indian firm to seek approval from
the central bank before investing in or extending loans to
offshore companies in amounts greater than 100 percent of the
acquirer's net worth. Under previous guidelines, the cap was set
at 400 percent.
Yesterday, Apollo said the new rules would not impact the
proposed merger because the deal had been announced prior to
August 14, when the Reserve Bank's notification came out.
Cooper Tire representatives did not return calls for
comment. Spokespeople for Deutsche Bank, Goldman Sachs, Morgan
Stanley and Standard Chartered declined to comment.
On June 12, Apollo and Cooper Tire announced they had
entered into a definitive agreement under which Apollo will
acquire Cooper Tire in an all-cash transaction valued at $2.5
billion. The combination will create the seventh-largest tire
manufacturer in the world.
Cooper Tire's five-year CDS has widened to 569bp from 261bp
prior to the buyout announcement.
Cooper Tire's stock was trading at $32.32 on Tuesday