NEW YORK (Reuters) –
Shares of Dow Chemical and Rohm & Haas plunged by more than 20 percent on Monday, after Kuwait scrapped a $17.4 billion joint venture with Dow, potentially upsetting its plans to buy rival Rohm & Haas.

Dow, the largest U.S. chemical company, could be hurt even if it completes its Rohm & Haas bid, as the company would be saddled with a large debt load from the deal.

It had planned to use the proceeds from the joint venture with Kuwait's state-run Petrochemical Industries Co to repay a large part of the debt financing for the $15.3 billion acquisition.

Analysts said Dow would be under pressure to renegotiate its bid for Rohm & Haas or, if possible, walk away from the deal.

The Midland, Michigan, chemicals maker agreed to buy Rohm & Haas at a 74 percent premium in July to broaden its specialty product offerings, in a deal that carried a termination fee of $750 million for Dow.

HSBC analyst Hassan Ahmed said that Dow should be looking for ways to extricate itself from its bid for Rohm & Haas.

Without the Kuwaiti joint venture, Dow would have to tap into difficult credit markets to be able to shoulder the deal, he said.

Ahmed said the company's transformation plan was built on two legs: the Kuwaiti joint venture and the Rohm & Haas deal.

"When one leg of the two-leg story has fallen off, how can they stand on just the Rohm & Haas deal?" he said.

Dow did not comment on whether the joint venture's collapse would affect its plan to buy Rohm & Haas.

Rohm & Haas said in a statement on Sunday that the completion of Dow's joint venture was not a condition for the closing of its takeover. It said it was working to complete the deal early next year.

Shares of Dow fell $3.85 or 20.4 percent to $15.07, and Rohm & Haas fell $13.84 or 21.8 percent to $49.72 on Monday morning on the New York Stock Exchange.

If the acquisition does fall through, it would join a long list of deals withdrawn in 2008 amid a lack of available credit and plunging stock markets.

More deals were canceled this year than ever before, with the total value of withdrawn deals valued at nearly $800 billion.

Dow and other chemical companies are struggling because of recessions in most developed countries and a sharp slowdown in emerging economies. The company earlier this month said it would close 20 facilities, divest several businesses and cut 5,000 jobs to cope with the slump.

(Editing by Steve Orlofsky and Matthew Lewis)