Moody's downgrades Tata Steel UK's rating by one notch
New Delhi: Moody's on Wednesday downgraded the rating of Tata Steel UK Holdings Ltd by one notch stating the operating environment of the European steel industry will weaken further in the coming months.
Tata Steel has now been given B3 rating by the rating agency, which said in a statement that the steel maker's debt coverage metrics are no longer consistent with its previous rating B2.
B3 rating implies that adverse business and economic conditions are likely to impair a company's capacity in meeting its financial commitments.
However, the global rating agency has kept the outlook of Tata Steel's UK venture unchanged at negative.
Besides, it has also lowered the outlook for Tata Steel India to negative from stable and downgraded the UK operation's 3.4 billion euro term loan facility and 690 million euro revolving credit facility to B3 from B2.
"The downgrade of Tata Steel UK Holdings Ltd's ratings reflects our expectation of further weakness in the operating environment facing the European steel industry, for which Moody's has a negative outlook," Moody's Vice-President and Senior Credit Officer Alan Greene said.
A Tata Steel spokesperson declined to comment on the matter.
"The weak industry fundamentals in Europe, driven mainly by the depressed economic environment in the region, are raising significant challenges for Tata Steel UK, and will likely lead to slower recovery in its operating and financial profile," Greene said.
Greene further said that change in rating outlook for Tata Steel India to negative "reflects the weakened credit profile of Tata Steel UK".
Tata Steel UK accounts for more than 50 percent of the group's overall steel production capacity and its weakened financial performance weighs heavily on the consolidated group, Greene said.
"The outlook for both ratings is negative given the outlook for steel in Europe and the constraints this is placing on the Group's overall financial profile, despite the capacity additions being made in India, that should enhance overall profitability in due course," Moody's noted.
Besides, it thinks that fundamentals of steel supply and demand in India will also soften as the Indian economy undergoes a period of slower growth and domestic capacity continues to be added.
"We expect consolidated credit metrics to deteriorate further in the current financial year despite the 1 million tonne of incremental output from its expanded plant at Jamshedpur," Greene said.
Ratings for both, Indian and UK operations of Tata Steel, are unlikely to go up in the near future, but could return to a stable outlook depending upon the industry environment, Moody's said.