S&P Global lowers Tata Steel rating

Our Bureau Mumbai | Updated on April 15, 2020 Published on April 15, 2020

S&P Global Ratings has lowered Tata Steel rating to 'B+' from 'BB-' as it expects Covid-19 related disruptions and the consequent economic slowdown to weaken the credit metrics of the company.

The rating agency also lowered Tata Steel UK Holdings rating to 'B' from 'B+' in line with the rating action on its parent.

The negative outlook reflects risks of further weakening in Tata Steel’s credit profile if the effect of economic conditions and lower commodity prices are more prolonged than expected, it said.

Even before recent developments, Tata Steel's earnings in the first nine months of fiscal 2020 had underperformed the rating agency's expectations. However, meaningful price hikes between last December and March, together with a seasonally stronger January–March quarter meant there was still potential for the company's financial profile to improve, but now it looks unlikely, it said.

S&P Global expects Tata Steel leverage, measured by debt to EBITDA range between 6 and 8 times in fiscals 2020 and 2021. This is up from more than three times as of March 2019.

More significant impact on Tata Steel credit profile is expected from high-cost European operations. While the company's both Europe plants (in the UK and Netherlands) are still running, they are doing so at significantly reduced capacity.

Overall, volumes will be lower by about 15-20 per cent this fiscal.

In India, the rating agency has assumed only marginal decline of 7-10 per cent in Tata Steel EBITDA in fiscal 2021.

On the positive side, it said Tata Steel has adequate liquidity and debt refinancing ability. On a consolidated basis, only about $250 million is due in each of the next two fiscal years. Tata Steel reported cash of about ₹5,200 crore.

Published on April 15, 2020

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