Moody’s reviews Tata Steel’s rating

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Posted: Tuesday, Jan 13, 2009 at 2255 hrs IST
Updated: Tuesday, Jan 13, 2009 at 2255 hrs IST

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Mumbai: Global rating agency Moody’s Investors Service has placed Tata Steel’s Ba1 corporate family rating on review for a possible downgrade. The rating action follows the rating downgrade of Tata Steel UK’s rating formerly (Corus) to B1, which remains on review for possible downgrade, and reflects the close linkages between the credit profiles of the two entities.

“The rating review was triggered by the deterioration in the operating and financial profiles of Tata Steel UK compared to previous expectations, as a result of an unprecedented decline in the steel markets with regard to both magnitude and speed,” says Ivan Palacios, a Moody’s AVP Analyst and lead analyst for Tata Steel.

“Given that Tata Steel UK accounts for a substantial proportion of Tata Steel’s operations, continued deterioration in the financial profile of the European subsidiary could lead to further support requirements from the Indian operations, which may weaken Tata Steel’s financial flexibility to levels below the Ba1 rating”, adds Palacios.

In its review, Moody’s will assess the impact on Tata Steel’s financial profile stemming from the requirement to continue supporting Tata Steel UK’s liquidity and covenant compliance management in light of severe deterioration in market conditions.

Moody’s will also focus on the dimension and time horizon of the expected deterioration in Tata Steel’s financial metrics under the current market conditions, as well as the effects of the counteractive measures announced by the company to adapt production rates and costs to the lower demand trends.

Moody’s last rating action on Tata Steel was taken on 22 October 2008, when the rating agency changed the outlook on the company’s rating to negative. For the year ended March 2008, Tata Steel UK contributed more than two thirds of the group’s liquid steel output and generated 76% of its revenues and 49% of its EBITDA.

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