The Hindu Business Line : Moody’s marks down Tata Steel

Mumbai, July 6 Moody’s Investors Service has downgraded the corporate family rating of Tata Steel Ltd to Ba1 (speculative grade) from Baa2 (investment grade).

The rating reflects Tata Steel’s weakened balance sheet liquidity and financial profile as a result of its largely debt-funded acquisition of Corus Group plc, the agency said. The rating outlook for Tata Steel is stable.

Rapid Growth

The combined entity is now the world’s sixth largest steel company with an annual production capacity of 28 million tonnes of crude steel. The total cost of the acquisition (excluding Corus’s debts of $846 million) was approximately $12.9 billion, it said. “The main challenge facing management is to de-risk the enlarged capital structure while not neglecting existing operations and opportunities for rapid growth in Asia. The current high leverage, however, constrains the company’s financial strength and flexibility,” said Mr Alan Greene, Moody’s Senior Vice-President.

“Furthermore, Tata Steel’s ambitious capacity expansion plan, will lead to higher project execution risk over several years and materially elevate financial leverage, unless it is deferred. Although the fundamentals of the European and Asian steel industry remain solid, any material decline could further elevate financial leverage.”

On Wednesday, Fitch assigned a long-term foreign currency issuer default rating of BBB- to Tata Steel Ltd, with a stable outlook.

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