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Tata Steel's $1.6 bn write off not to impact rating: Moody's

Last Updated: Tuesday, May 14, 2013 - 19:36

New Delhi: Tata Steel's decision to write off USD 1.6 billion (over Rs 8,700 crore) in goodwill will not have an immediate impact on its credit rating, although the move highlights the continued poor performance of its European unit, global rating agency Moody's said on Tuesday.

"The decision...Has no immediate impact on its ratings," Moody's said in a statement.

It added, however: "The announcement highlights the structural challenges in the European steel market and the continued poor performance at Tata Steel UK Holdings (TSUKH or Tata Steel Europe), which are incorporated in both entities' negative rating outlooks."

Tata Steel had said yesterday that it will take a non- cash write down of the goodwill and assets in the consolidated financial statements for the year ended March 31, 2013 of around USD 1.6 billion, largely due to weaker macroeconomic conditions in Europe.

"As TSUKH continues to struggle with overcapacity and sluggish demand from Europe and with financial year ending March 2013 likely to reflect the nadir of Tata Steel's credit metrics, the write-down does not come as a surprise", Moody's Vice President and Senior Credit Officer Alan Greene said.

TSUKH generated negative EBITDA (earnings before interest, taxes, depreciation and amortisation) per tonne of USD 26 in the third quarter ending December 2012 and "we expect it to barely break even over the full year", he added.

According to Moody's, the burgeoning debt level remains a challenge for the Tata Steel group and funding constraints have emerged, affecting the expansion of the group.

"The emergence of funding constraints affecting the expansion of the profitable parts of Tata Steel, due to TSUKH's losses, suggests that further action, along the lines of the disposal of Teeside Cast Products in 2011 is needed in order to reverse TSUKH's cash outflow," Greene said.

Tata Steel, which had debt of USD 10.54 billion (Rs 57,981 crore) as of December, had said that demand in Europe has fallen by 8 percent in 2012-13 and almost 30 percent since the emergence of the global financial crisis in 2007.

"The above underlying condition is expected to continue over the near and medium term, and has led to the downward revision of cash flow expectations underlying the valuation of the European business," Tata Steel had said.

Nearly two-third of the company's 28 million tonne capacity is in Europe.

Moody's said however that it will be looking to the upcoming full-year results announcement (on May 23) and subsequent quarters to ascertain whether a gradual turn-around of Tata Steel Europe's performance can be achieved.

"When companies sell adulterated drugs, they undermine the integrity of the FDA's approval process and may cause patients to take drugs that are substandard, ineffective, or unsafe," Acting Assistant Attorney General for the Civil Division of the Department of Justice Stuart F Delery said.

Ranbaxy admitted it sold batches of drugs that were improperly manufactured, stored and tested and also pleaded guilty to making fraudulent statements to the Food and Drug Administration about how it tested drugs at the two plants.

Commenting on the case, Ranbaxy CEO & Managing Director Arun Sawhney said, "While we are disappointed by the conduct of the past that led to this investigation, we strongly believe that settling this matter now is in the best interest of all Ranbaxy's stakeholders."

He went on to add that the conclusion of the US Department of Justice investigation does not materally impact the company's current financial sitution or performance.

Ranbaxy had in December 2011 set aside USD 500 million in anticipation of settlement agreement.
While the company has not sold the 30 drugs identified as adulterated and improperly manufactured in the US, they reportedly continue to be sold in other parts of the world including India.

"To date Ranbaxy has successfully met all obligations under the terms of the USFDA consent decree (entered into in December 2011). We continue to work closely with the USFDA," a company spokesman said.


First Published: Tuesday, May 14, 2013 - 19:36
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