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| Moody's cuts Tata Steel rating... |
| Bloomberg / New Delhi Mar 05, 2009, 00:00 IST |
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Tata Steel, India’s biggest producer, had its debt rating reduced one level by Moody’s Investors Service after falling prices dragged third-quarter profit down 39 per cent.
The rating was lowered to Ba2, two levels below investment grade, from Ba1, the agency said in a statement today, adding that the company remains on review for further possible downgrade.
The global recession has eroded earnings at steelmakers, including ArcelorMittal, the world’s biggest steel maker. Corus Group Ltd, which accounts for more than two-thirds of Tata’s production, has pared output by 40 per cent and expects the cuts to continue until the second quarter.
Standard & Poor’s lowered its rating on Tata by one level last month, citing weak market conditions.
“The rating action reflects the deteriorating operating performance of the company, as a result of the dramatic reversal apparent in steel industry dynamics following, in turn, a sharp fall in demand and prices,” Moody’s said.
The price of European hot-rolled coils, a benchmark product, has fallen by half to ¤415 ($532) a ton from a high of ¤815 on June 18, according to Metal Bulletin. Indian prices have dropped 40 per cent during the same period.
The impact of falling prices is “greatest” at Corus, which Tata bought for $13 billion in 2007, Moody’s said. The UK-based unit may need funding from Tata Steel to help it “rebalance” its capital structure, the agency said.
Koushik Chatterjee, chief financial officer at the Mumbai-based steelmaker, declined to comment on the rating change.
Debt Burden
Tata had a total debt of about $5.6 billion in December, Moody’s said. That’s more than twice the steelmaker’s current market value of $2.2 billion. The company’s shares, among the worst performers on India’s benchmark stock index this year, added 1 per cent to Rs 156.9 at the close of trading in Mumbai.
“The weakening in Tata Steel’s operating performance has impacted its financial strength, and credit metrics are expected to deteriorate beyond the comfort levels anticipated at the time of the completion of its acquisition of Corus,” the agency said.
The company reported earnings, including Corus, fell 39 per cent in the quarter ended December 31 to Rs 814 crore.
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