Global rating agency Standard & Poor's has rated two Indian companies two notches above the country's foreign currency rating of BB+ (stable).
MUMBAI/KOLKATA: Here's another feather in India Inc's cap. Global rating agency Standard & Poor's has rated two Indian companies two notches above the country's foreign currency rating of BB+ (stable).
The two companies are Tata Steel and Infosys Technologies, and the rating assigned to them is BBB (with stable outlook). They have been upgraded from BB+ (stable) in the case of Tata Steel and BBB- for Infosys. At BBB, both Tata Steel and Infosys will be considered investment grade for any foreign currency debt issue. While Tata Steel moves up two notches, Infosys moves up one. S&P has undertaken the exercise as part of the exercise to upgrade 10 companies in Asia beyond the sovereign ceiling.
Till now, domestic firms have at best gone just one notch above what is called the "sovereign rating" - as in the case of ICICI Bank in early 2002. The bank received a long-term foreign currency rating of Ba1 from S&P rival Moody's Investor Service, at a time when India was rated Ba2. Reliance Industries was the first private sector Indian firm to receive an investment grade rating - Baa3 - from Moody's in 1996-97.
A good rating helps companies raise money - either abroad or at home - at lower rates of interest. Till a couple of years ago, Indian companies were unable to beat the country ceiling because they were constrained by the low - even "below investment grade" - rating that India had due to concerns on the external front. The net result: borrowing costs went up for corporates.
"The S&P upgrade may have no material impact on Infosys Technologies, which enjoys high levels of free-cash flows and carries no debt, but it can lower Tata Steel's foreign borrowing costs by at least 40-50 basis points," Raman Uberoi, director, corporate & infrastructure rating, Crisil, an S&P subsidiary, told DNA.
"Tata Steel has large investment plans over the next 10 years and this upgrade will have a positive impact on their interest costs," Uberoi said. The upgradation signals a reduction in risks for lenders, and is expected to considerable improve Tata Steel's ability to raise funds for its huge greenfield and brownfield investments.
B Muthuraman, Tata Steel managing director, said that the upgrade "is an important milestone and reflects Tata Steel's competitive position in the industry. This will enable the company to access global funds for executing its growth projects in the future. Tata Steel is committed to create sustainable long-term shareholder value and become a significant steel player in the region".
The company's vice-president (finance), Koushik Chatterjee, commented that the rating change reflects the "strong balance-sheet and financial position of Tata Steel. The rating will enable Tata Steel to access a larger investor base and raise foreign currency funds efficiently".
The company has committed investments to the tune of around Rs 68,400 crore in putting up additional steel capacities in several eastern states. Obviously, a large part of these projects will have to be funded through foreign debt.
Tata Steel has already set the ball rolling in putting up a 12 million tonne integrated greenfield steel plant in Jharkhand entailing an investment of Rs 42,000 crore and another greenfield six million tonne plant at Kalinganagar in Orissa. Tata Steel will also invest Rs 11,000 crore in ramping up production of its existing plant in Jamshedpur from five million tonnes to 10 million tonnes.
(With additional reporting by Sanjay K Pillai)
Moving up
Upgrade will help Tata Steel raise foreign currency funds cheaper
Rating change of no immediate benefit to zero-debt Infosys
New rating makes both companies investment grade
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}