25% crash: Apollo Tyres shares at 18-month low on debt worries post Cooper deal

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.

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Apollo shares were down 24.78 percent at Rs69.20 at 2:34 p.m.

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.

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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.

Reuters