Steel Authority of India (SAIL) was downgraded by CARE Ratings on Wednesday, with the rating lowered by a notch to AA+ for long-term debt worth more than Rs 15,000 crore, reports fe Bureau in Mumbai. The agency cited a subdued financial performance in the first nine months of fiscal 2015-16 that led to moderation in key credit metrics.
Downgraded instruments also include SAIL’s proposed long-term Bond Programme III worth Rs 6,000 crore.
Given this, the borrowing may be made at a higher yield. SAIL had last borrowed R1,185 crore in November 2015, through seven year bonds at a coupon rate of 8.35%, Bloomberg data showed.
In April last year, Fitch had lowered the outlook for the steelmaker to “Negative” but this is the first downgrade since February 2011, according to Bloomberg. CARE lowered ratings for various long-term bond programmes as well as the PSU’s proposed public deposit plan while affirming the grading of Rs 8,000 crore of short-term debt at “A1+”.
In 2016 so far, rating agencies have lowered the outlooks for 15 PSEs. While CRISIL has lowered the grading of various Tier bonds of eight public sector banks, it also reduced the credit rating of capital goods player BHEL by one notch to “AA+”. In late January, Moody’s put ratings of 175 commodity firms on review including oil & gas PSEs like Oil India, ONGC and ONGC Videsh (OVL).
CARE noted that despite lower raw material prices, SAIL reported losses in the nine months to December 2015, due to a sharp decline in sales realisations, tepid volume growth and elevated cost structure. The company reported operating losses of R2,525 crore and a net loss of R2,906 crore in . Net sales realizations for salable steel, fell by a sharp 20%, largely on account of higher imports and a challenging industry scenario.
According to CARE, the rating action also takes cognizance of the recent imposition of minimum import price (MIP) on various steel products that could impact profitability gradually. It also takes into account risks associated with with the implementation of the large ongoing modernization & expansion (M&E) project of the company and cyclicality inherent in the steel industry.
“Going forward, the company’s ability to improve its profitability and cash accruals while maintaining its capital structure and complete the ongoing M&E plan within the time and cost estimate shall remain the key rating sensitivities,” CARE noted in a rating update on its website.