Global rating agency Standard & Poor's (S&P) today downgraded auto major Tata Motors' credit ratings saying the company was facing deteriorating cash flow and an adverse operating environment.
The downgrade, coming two days after the Tatas launched the cheapest car Nano, highlights deterioration in the company's ability to repay debts in the long term.
The ratings remain on credit watch with negative implications, S&P said, adding that the company's grades have been put on 'B+' (little assurance of long-term payment) from the earlier 'BB-' (moderate security for future payment).
S&P said the action follows material deterioration in Tata Motors' cash flows and related parameters on a consolidated basis, derived from an adverse operating environment, which, combined with significantly high debt levels, will affect its credit protection measures.
S&P said it has also lowered the issue rating on the company's senior unsecured notes to 'B+' from 'BB-', while keeping the credit watch with negative implications.
When contacted for comments, company officials did not respond immediately.
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The credit watch, with negative implications, reflects the pending refinancing for the remaining $2 billion bridge loan, which is due on June 2, and the significantly high level of short-term debt as of Dec 31, 2008.
"The rating is likely to be affirmed if the refinancing plan is implemented," S&P credit analyst Manuel Guerena said.
The newly launched Nano has the potential to gradually improve Tata Motors' cash flow after fiscal 2010 following the commissioning of the Gujarat plant, it said, adding that JLR continued to register volume declines, something that is expected to prevail for the rest of 2009.
Tata Motors' operating performance has been hit by weak global auto market conditions although that factor is partly offset by the general fall in commodity prices, S&P said.