MUMBAI (Reuters) - Shares in Apollo Tyres Ltd fell to their lowest in over 18 months on Thursday after a $2.5 billion deal to buy U.S.-based Cooper Tire & Rubber Co raised concerns about the company's debt.
Apollo will fully fund the purchase through new debt, raising the post-acquisition leverage for the combined entity to 3.8 times net debt/EBITDA (earnings before interest, tax, depreciation and amortisation) from 1.4 times now, according to analysts' estimates.
Apollo shares were down 18.6 percent at 74.85 rupees at 0456 GMT and were on track to post their biggest single-day percentage fall. They earlier fell by as much as 20.8 percent to their lowest level since February 2012.
The acquisition would form the world's seventh largest tire company and give Apollo a foothold in the top two auto markets, China and the United States.
Goldman Sachs said in a report Apollo's net debt-to-equity ratio would rise even though Cooper would service a significant portion of the additional debt the Indian company would take to finance the deal.
"We believe execution is key in order to generate stable margins particularly amid a volatile demand and raw material environment, and reduce leverage over time," Goldman Sachs analysts wrote. (Reporting by Aradhana Aravindan and Abhishek Vishnoi; Editing by Sumeet Chatterjee and Miral Fahmy)
