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Fitch Ratings assigns BB+ to Tata Steel $1.5 billion notes

Tuesday, 29 July 2014 - 7:46pm IST | Place: Mumbai | Agency: PTI

International rating agency Fitch on Tuesday assigned 'BB+' with a stable outlook rating to USD 1.5 billion notes issued by Tata Steel Ltd (TSL).

As part of its strategy to mop up capital internationally, Tata Steel had raised USD 1.5 billion in a dual tranche bond sale on July 25, making it the largest such deal by the Tata group firm.

"Fitch Ratings has assigned Tata Steel Limited's (TSL; BB+/Stable) USD 500 mn 4.85 percent senior unsecured guaranteed notes due 2020 and USD 1bn 5.95 percent senior unsecured guaranteed notes due 2024 a final rating of 'BB+'," it said in a statement.

The final rating follows the receipt of documents and is in line with the expected rating assigned on July 21, it said.

The notes were issued by Singapore-based ABJA Investments Co Pte Ltd, a wholly owned subsidiary of TSL, and unconditionally and irrevocably guaranteed by India-based TSL.

"The notes are therefore rated at the same level as TSL's foreign-currency senior unsecured rating of 'BB+'," it said.

Proceeds of the notes will be used to refinance the group's offshore debt obligations and for general corporate purposes outside India.

"The notes will rank pari passu with the TSL's existing and future senior unsecured indebtedness," it said.
Fitch said it expects the financial profile of TSL to moderate, with "net leverage to fall below 4x by the financial year ending 31 March 2015 (FY15). We expect TSL's strong cash generation to support the deleveraging over the medium term, driven by improved performance at both its European and Indian operations."

It said the planned commissioning of the first phase of its new plant at Odisha in 4Q FY15 will also support stronger earnings. The first phase of the new plant is expected to add 3 million tonnes per annum (MTPA) of capacity.

TSL has undertaken measures to control its rising debt levels, it said adding, in March 2014, the company sold a land parcel in Mumbai and in May 2014 sold its 50 percent stake in Dhamra Port Company Limited. Fitch believes that the company is likely to divest additional assets, if required, which will help fund its capex and constrain TSL's debt levels.

The company also now expects to start major work on the second phase of its new Odisha plant following the commissioning and stabilisation of the first phase.

Further it said expectation of a sustained boost to Tata Steel UK Holdings Limited's profitability reflects the modestly better market conditions for western European steel producers, together with continued cost-rationalisation and an improving product mix.

Fitch expects steel demand in India to strengthen in the next 12 months as investment picks up, it said adding the weak economic environment in the past two years has affected the key automobile, construction and engineering sectors.

TSL's ratings continue to benefit from a one-notch uplift because of the potential support from the Tata group due to TSL's strategic importance to the group. 

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