Ratings agency Fitch downgraded India-based steel manufacturing company Tata Steel Ltd. and its wholly-owned subsidiary Tata Steel UK Holdings on declining profitability and a spike in leverage during FY 2016. It has placed the credit ratings of both entities on Rating Watch Evolving (RWE).
The downgrade reflects uncertainty regarding Tata Steel’s announcement of restructuring its portfolio which includes a potential partial / complete divestment of its UK operations. A partial or a complete exit from the UK operations would be a credit positive for the company, Fitch stated.
Weak demand and overcapacity, along with softening of commodity prices globally, has affected the company. Demand growth in India for nine months ending December 2015 was at 4.7%, met largely by rising imports. However, recent moves by the Indian government to implement a minimum import price followed by a 20% duty on imports has provided some relief to domestic steel producers, but prices have still remained 20% lower than the average for FY-15.
Softening steel prices were evident in Tata Steel’s earnings for the 9M-15 period which saw consolidated EBITDA per tonne decline 35% to about INR 7,400 per tonne from Rs 11,400 per tonne in FY15, hit by a Rs 7,150 per tonne fall in realisation.
Source: Business Standard