Fitch Ratings today downgraded the long-term foreign currency Issuer Default Rating (IDR) for Tata Steel and Tata Chemicals to 'BB+' from 'BBB-'.
Simultaneously, the rating agency also downgraded Tata Steel UK Ltd's (TSUK) long-term foreign currency IDR to 'B+' from 'BB'.
The downgrade in the case of Tata Steel and Tata Steel (UK) reflects a sharp correction in global demand for steel products in the past six months. The impact has been severe in Europe, in turn impacting the profitability and credit metrics of the UK-based company.
While Tata Steel’s India operations have also been impacted by the sharp drop in prices, the volume impact has been cushioned to an extent by continuing demand from the construction and infrastructure space.
Referring to rating action pertaining to Tata Chemicals instruments, Fitch said its National Long-Term rating is revised to 'AA(ind)' from 'AA+(ind)'. This follows the resolution of the rating Watch Negative classification, which was assigned on December 16, 2008. The outlook is Negative.
Fitch has done re-assessment of the Tata group's ability to provide support to TCL. The sharp drop in valuations of key listed and unlisted entities of the group limits its financial flexibility to provide support to all group companies. This is more so in view of the deterioration in the credit profiles of some of the other operating entities in the group.
Therefore, Fitch has now taken a stand-alone view of TCL and withdrawn the one-notch benefit that it had previously assigned on account of potential support from the group.
