"Moody's Investors Service has downgraded Tata Steel Limited's corporate family rating (CFR) by two notches to Ba3 from Ba1."
Global agency Moody's on Thursday downgraded credit ratings of Tata Steel on a weaker than expected operating performance in its key operating markets of India, Europe and Southeast Asia on account of persistently weak steel prices.
"Moody's Investors Service has downgraded Tata Steel Limited's corporate family rating (CFR) by two notches to Ba3 from Ba1. At the same time, Moody's has downgraded Tata Steel UK Holdings Limited's (TSUKH) CFR.... The outlook on all ratings is negative," Moody's said in a statement.
The rating actions reflect the weaker-than-expected operating performance of Tata Steel in its key operating markets of India, Europe and Southeast Asia as a result of persistently weak steel prices, it added.
Tata Steel said, "The sharp fall in international prices due to excessive exports from China and other countries and the challenging conditions facing the global steel industry has triggered a review of Tata Steel's credit rating." Moody's said an upgrade of Tata Steel's rating is unlikely in near-term, given today's multi-notch downgrade and the negative outlook. Ba 3 indicates higher credit risk.
"With no respite expected from the downward pressure on international steel prices, we anticipate the company's leverage and coverage metrics to remain weakly positioned for the next 12 to 18 months," said Kaustubh Chaubal, Moody's Vice President and Senior Analyst.
"Consolidated reported leverage -- as indicated by debt/ reported EBITDA -- stood at approximately 9x at end December 2015, which is well beyond the tolerance level for a Ba category rating," the rating agency said.
Tata Steel's results for the nine months of the fiscal ending March 2016 were extremely weak, with reported consolidated revenue of Rs 876.4 billion and consolidated underlying EBITDA of Rs 56.2 billion, down 17% and 49%, respectively from a year ago.
The company's India business revenues and underlying EBITDA were also down 11% and 38% at Rs 276.9 billion and Rs 52 billion, over the same period, it said, adding that India business accounts for approximately 32% of consolidated revenue and 92 per cent of underlying EBITDA.
"On a standalone basis TSI's (Tata Steel India) leverage -- as measured by adjusted debt to EBITDA - was approximately 6.5x at December 2015," it said.
The rating action also incorporates the impact of the recent government announcement of the imposition of a minimum import price (MIP) on certain grades of steel shipped into the country for a six-month period.
"While earlier measures by the government -- in the form of increases in import duties and the imposition of a 20% safeguard duty on certain categories of HRC -- had proved inadequate, we expect the MIP to be more effective, given it covers some 173 grades of steel imports and the setting of minimum prices for such imports," Moody's said.
This measure should allow domestic steel companies to raise prices, although gradually," said Chaubal.
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