JSW Steel’s ratings outlook has been changed to “negative” from “stable” by Moody’s Investor Services on sharp fall in steel prices and its resultant impact on the company’s credit profile, even as it affirmed the Ba1 corporate family rating and senior unsecured ratings for the steel-maker.
“Our change in the rating outlook to negative from stable has been prompted by the continuing deterioration in steel prices because of cheaper imports and expectations of only a modest recovery,” said Kaustubh Chaubal, a Moody’s vice-president in a statement.
The negative outlook reflects the pressure on leverage arising from weak steel prices and, while measures to conserve cash may well be undertaken, the decline in EBITDA is likely to outpace any reduction in debt from current levels. The ratings could also come under pressure if the company adopts an overly aggressive acquisition or capex policy, Moody’s said.
Steel prices in India are under severe pressure due to continued imports from China, Korea, Japan. Imports were up 42% on a volume basis in the first half of the current fiscal from the same period last year leading to a fall in the benchmark prices of hot rolled coil (HRC) by 37% from a year ago. The government has already imposed a 20% safeguard duty on certain categories of HRC.
“Despite management’s best efforts, the drop in steel prices cannot be easily offset and so, in view of reported consolidated EBITDA of R94 billion in FY15, we expect EBITDA of around R76 billion in FY’16,” Chaubal added.
However, Moody’s does not expect EBITDA per tonne to return to the levels seen in prior years. Instead, it hopes it to increase by R600-800 per tonne for the remaining part of the current fiscal.