Tata Chem may be downgraded

Global rating agency Moody's Investors Service has placed the Baa3 foreign currency issuer rating of Tata Chemicals on review for possible downgrade.

On the same lines, domestic rating agency Crisil also has placed its rating on Tata Chemicals' short-term debt programme on 'Rating Watch with Developing Implications'.

The rating agencies' action follows the company's announcement that it has entered into a definitive agreement to acquire 100 per cent of US-based General Chemical Industrial Products Inc (GCIP) for about $1 billion. GCIP specialises in the production of soda ash.

"The rating action reflects uncertainties associated with the funding structure, and the impact the acquisition will have on Tata Chemicals' consolidated financial profile," says Moody's Terry Fanous, senior vice-president, adding, "Tata Chemicals will undoubtedly face integration challenges, given the size and operating profile of GCIP."

At the same time, Moody's recognizes that the acquisition will yield incremental benefits to Tata Chemicals, which will become one of the world's largest producers of soda ash.

Moody's review will focus on the funding structure for the transaction and the resulting financial and operating profile, potential integration challenges, the group's financial strategy and capital expenditure requirement, and the debt structure and ranking of creditors within the consolidated entity.

The review will consider Tata Chemicals' strengthened industry position arising from this acquisition. The mode of funding, future investments, and the likely impact of the acquisition on Tata Chemicals' credit profile is not yet known.