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PrintMoody’s Investors Service has downgraded the corporate family rating of Tata Steel to Ba2 from Ba1 (speculative grade, judged to have questionable credit quality). The rating remains on review for possible further downgrade, it said.
“The rating action reflects the deteriorating operating performance of the company, as a result of the dramatic reversal apparent in steel industry dynamics following, in turn, a sharp fall in demand and prices,” said Mr Ivan Palacios, a Moody’s analyst.
“The weakening in Tata Steel’s operating performance has impacted its financial strength, and its credit metrics are expected to deteriorate beyond the comfort levels anticipated at the time of the completion of its acquisition of Corus in 2007,” he said.
The extent of the negative impact on its financial profile is greatest at Tata Steel UK (Corus), which is likely to experience stress in its financial covenants in 2009, and could require support in the form of an equity injection from Tata Steel India to enable it to rebalance its capital structure.
However, Moody’s believes that Tata Steel India’s operations, which have enjoyed low costs and high margins, are not immune to the challenging nature of the market environment. In Q3 (Oct-Dec 2008), Tata Steel India’s EBITDA dropped by around 57 per cent from Q2 to $306 million.
This figure compares with a total debt balance at Tata Steel India of around $5.6 billion as of December 2008, thereby constraining in turn, its financial capacity to support Tata Steel UK if the latter’s operation does not improve. –Business Line
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