Care Ratings downgrades Tata Steel's credit rating

Care Ratings has downgraded Tata Steel by a notch due to uncertainties relating to disposal and restructuring of the UK business, the Indian steel giant said today.
"According to Care Ratings, the uncertainties relating to the disposal/restructuring of TSL's (Tata Steel Ltd) UK business has triggered a revision of Tata Steel's credit rating. The rating has been downgraded by 1 notch," Tata Steel said in BSE filing.
It has revised the company's unsecured NCD and unsecured rupee loan from existing CARE AA+ (Stable) to CARE AA (Stable), the filing said.
Care Ratings has also lowered Tata Steel's unsecured subordinated perpetual securities from existing CARE AA (stable) to CARE AA- (Stable), the filing added.

The revision takes into account the continuing uncertainties relating to the disposal/restructuring of its stressed UK business, the moderate financial risk profile of the company as reflected in its high gearing and below average debt coverage indicators in the category as well as low visibility in the short to medium term of sustainability of margins achieved in recent past, the filing said.
"The ratings favourably build in the successful ramp-up of Kalinganagar, the improvement in operating performance at TS UK - also assisted by a depreciating pound and the management's focus on improving TSL's credit profile by restructuring its operations to make them more efficient, refinancing its debt and monetising its liquid investments in order to deleverage the balance sheet," it said.

The ratings continue to be supported by high financial flexibility enjoyed by TSL by virtue of being part of the Tata group, its strong liquidity position which is further aided by investments in some of the other Tata group entities with significantly higher market value.

The above rating strengths are, however, tempered by the high level of uncertainty surrounding the restructuring/sale of UK steel operations given the nature of complexities involved especially related to the pension liabilities; a relatively slow pick up of steel demand in the global market and challenging demand outlook in key geographies putting pressure on the realisations and a history of volatility in TSE's (Tata Steel Europe) performance.

While TSL has been trying to continually refinance its debt to ease its short repayment obligations as well as monetise its investments to deleverage the balance sheet, the gearing still remains high.
The timely disposal of the loss-making UK operations along with favourable global steel price movement remains the key rating sensitivities.