Moody's downgrades JSW Steel's corporate family rating

Moody's Investors Service today said it has downgraded JSW Steel's corporate family rating (CFR) and senior unsecured notes ratings to Ba3 from Ba1.
The outlook on all ratings remains negative, the agency said in a statement.
"The two-notch downgrade reflects JSW's weaker than expected operating performance as a result of persistently weak steel prices and our expectation that this low steel price environment will continue over the next 12 to 18 months," said Moody's Vice President and Senior Analyst Kaustubh Chaubal.
JSW's results for the nine months of the fiscal year ending March 2016 (April-December 2015) were extremely weak, the global ratings agency said.

"Moody's remains concerned about the persistence of downward pressure on steel prices with the continuation of imports into India from China, Korea and Japan.
"Such imports -- on volume basis -- were up 30 per cent for April-December 2015 from the same period last year despite the implementation of protectionist measures against imports," it added.

As a result, Indian hot rolled coil (HRC) prices fell 24 per cent during the third quarter of the fiscal year ending March 2016, prompting JSW's blended realisations to fall to Rs 28,263 per tonne from Rs 37,327 a tonne a year ago.
EBITDA per tonne fell more sharply by 51 per cent in the said quarter to Rs 3,443 compared to last year's Rs 6,987.

While JSW has undertaken several measures to reduce costs, conserve cash flow, and minimise the rise in debt, the severe drop in steel prices has strained earnings and increased leverage.
Looking ahead, the agency said it expects an increase in the company's shipments with commencement of the incremental 4 million tonnes per annum (MTPA) brownfield expansions and the continued growth of retail sales through the expansion of its shoppe outlets -- both benefiting from relatively strong domestic demand.
Moody's does not expect EBITDA per tonne to return to
levels seen in prior years.
Rather, it notes that the roll-over of safeguard duties beyond March 2016 and the maintenance of at least current prices are necessary if domestic steel companies are to record any improvement in their EBITDA per tonne.

JSW's ratings continue to reflect the company's large scale and competitive conversion costs, supported by wide range of furnace technology and the coastal locations of its operations.
The ratings draw support from management's successful track record of managing growth and the effects of cyclical downturns.
Furthermore, JSW's weak operating performance require it to obtain waivers on bank credit facilities in respect of its leverage covenants for September 2015 testing date.
The company has been proactive in managing this risk and has also received relaxations for future periods from some of its major lenders, and is in the process of obtaining similar relaxations on the balance for the next covenant testing date in March 2016, Moody's said.

"The negative outlook reflects the potential for industry conditions to weaken further and the company proving unable to improve its operating and financial performance over the next 12 to 18 months," it added.