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Moody’s Investors Service has revised the ratings outlook on Tata Steel and its subsidiary Tata Steel UK Holdings to ‘stable’ from ‘negative’.
The change in the ratings reflects expectation that the benign operating environment and recovery in the financial performance over the last few quarters will continue over a longer term, leading to a sustained improvement in the company’s credit metrics, said Kaustubh Chaubal, Vice-President and Senior Analyst, Moody’s.
Tata Steel’s consolidated adjusted leverage was at an estimated 4.7 times at the end of September, down from 8.9 times in March 2016. The change in the ratings outlook rests on the view that Tata Steel will maintain a cautious approach when evaluating expansions or potential acquisitions. Large debt-funded investments, if any, that slow the pace of leverage correction could weigh on the ratings.
Tata Steel has shown interest in acquiring the debt-laden, 10-million-tonne a year Essar Steel in a National Company Law Tribunal-led insolvency resolution process.
It is also in the process of doubling capacity to 6 mtpa at the recently-commissioned Kalinganagar plant in Odisha.
China’s move to helpMoody’s expects strong growth prospects in Tata Steel’s key operating markets of India, Europe and South East Asia with apparent steel consumption slated to grow, amid production cuts in China, auguring well for Tata Steel, said Moody’s.
Moody’s expects China’s steel export to fall with their government implementing supply-side reforms to protect environment. This will lead to increase in regional steel prices.
The rating agency expects India’s steel consumption to grow 4.5 per cent in the next two years on the back of GDP growth estimate of 7.5 per cent. Moreover, it added, the implementation of the Goods and Services Tax (GST) in July will help the organised sector, and strong brand recall players such as Tata Steel.
Moody’s expects Tata Steel to enter into a definitive agreement for a joint venture of its European business with Thyssenkrupp AG by March next year and implement the JV by March 2019.
The transaction is at an early stage with signing and possible closing subject to due diligence and approvals from respective shareholders and anti-trust authorities.
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