Moody's changes JSW Steel's rating outlook to positive, affirms Ba2

Moody's Investors Service has changed the outlook on JSW Steel Ltd and Periama Holdings LLC's ratings to positive from stable.

It has also affirmed JSW's Ba2 corporate family rating (CFR) and its Ba2 senior unsecured notes rating.

At the same time, Moody's has also affirmed the Ba2 guaranteed backed senior unsecured rating on Periama Holdings LLC and the Ba2 rating on the 40 million dollar guaranteed revenue bonds issued by Jefferson County Port Authority.

Moody's has also assigned a Ba2 rating on the proposed notes to be issued by JSW in two tranches with one of the tranche proposed to be sustainability-linked senior unsecured notes.

"The outlook change to positive reflects our view that JSW's better-than-expected operating performance this fiscal year will help to sustain its deleveraging," said Kaustubh Chaubal a Moody's Vice President and Senior Credit Officer.

"We expect leverage -- measured by consolidated debt/EBITDA -- to decline to less than 2.0x by March 2022 from 5.9x at March 2020, 4.5x at March 2021 and 2.9x at June 2021," he said.

"We also forecast that the company will continue to generate large and positive free cash flow from operations over the next 12 to 18 months because of supportive steel prices and steady product spreads amid likely continued strong steel demand," added Chaubal who is also Moody's lead analyst for JSW.

The rating action is also supported by the sustainable improvement in JSW's liquidity profile.

Moody's projects JSW will incur an estimated two billion dollars in annual capital expenditure (excluding acceptances payment) towards investments in downstream facilities, plant upgrades and brownfield capacity.

Still, large EBITDA generation and tight working capital management should enable sufficient free cash flow generation.