S&P downgrades Telco to BB- from BB; outlook negative

Mumbai, January 25: | Updated: Jan 26 2002, 05:30am hrs
Standard & Poor’s (S&P) has downgraded Tata Engineering’s (Telco) corporate credit rating to “BB-” from “BB” with a negative outlook, and also removed it from “credit watch” where it was placed on March 2, 2001.

“Telco’s rating reflects the extremely weak operational profitability arising from the persistent weak demand in the domestic commercial vehicle market, sub-optimal asset utilisation in its small-car business, and strong competition from other manufacturers,” S&P director, corporate & infrastructure ratings, Craig Parker said here on Friday.

Commenting on the report, Telco executive director, finance & corporate affairs, Praveen Kadle said, “this will not have any impact on the company as it is related to last year’s performance. The downgrading is an extension of Telco’s last year’s performance when it reported huge losses. However, since then, Telco has made a lot of improvement which the rating agency has also taken note of.”

He also said the rating pertains to the $200-million forex debt, raised in 1997 for a 10-year period. “We do not have any borrowing programmes at this moment,” he said, adding, “out of the $200-million foreign debt due in 2007, we have prepaid $154 million already bringing down our exposure by 77 per cent.”

S&P, on its part, has made it clear that any improvement in Telco’s financial profile depends on the successful implementation of its planned financial recast. Offsetting Telco’s aggressive capital structure was its dominant market position in the commercial vehicle market and the recent completion of its Rs 465-crore rights issue, it said.

“Telco’s financial performance during 2001 was adversely affected by reduced sales in its most profitable commercial vehicles segments. It underutilised substantial capacities of 360,000 units per year, selling about 170,000 units during ’01, a decline of 15 per cent from the previous period,” the agency said, adding unit-sales were negatively impacted by the slowdown and high cost of emission control-compliance coupled with weak profitability of commercial road freight operations.