S&P upgrades Tata Steel, Tata Motors, JLR ratings over Tata Sons' influence

Standard and Poor’s (S&P) has upgraded the global ratings for Tata Steel, Tata Motors and Jaguar Land Rover Automotive PLC (JLR) following the reassessment of influence and potential for extraordinary financial support from Tata Sons to group entities.

It revised the rating for Tata Steel and its 100 per cent-owned financing subsidiary ABJA Investment Co from “BB” to “BBB-“.  The outlook is stable. Also, it upgraded the rating for Tata Motors and its 100 per cent subsidiary TML Holdings from “B” to “BB-“ with a stable outlook. JLR’s rating has been revised from “B” to “B+”. The outlook is stable.

The ratings have also been removed from CreditWatch.

The upgrades reflect the view that the credit profiles of the Tata Group entities are strengthened by their importance to Tata Sons, with potential for financial support, if required.

“We also expect Tata Sons to have a positive influence on the long-term strategy, financial policies and funding access of its group entities. We regard the credit quality of Tata Sons to be strongly investment grade,” the rating agency said in a statement. Tata Sons Pte Ltd is an unrated entity.

The incorporation of group support into the ratings follows a revision to approach treating Tata Sons as a conglomerate rather than as an investment holding company. “We have observed that Tata Sons and its subsidiaries and associates have become a more cohesive group in recent years," it added.

Tata Group entities will benefit from extraordinary support, if needed, with their importance to Tata Sons underpinned by factors like Tata Sons' increased ownership in group entities over the last few years.

There is a greater influence of Tata Sons on the strategy and financial policies of the group companies, although they operate independently with professional directors and management. For example, group companies have prioritised debt reduction, in line with Tata Sons' policy.

Key Tata Group companies enjoy a legacy status within the Tata Group and account for a sizable share of the group's EBITDA and assets. They are also closely linked to Tata Sons' reputation and risk management.

S&P said the extent of the rating uplift is, however, constrained by factors like Tata Sons' minority ownership in the rated entities and a relatively small share in the cash flow and portfolio value at the Tata Sons' level. Also, the limited operational and financial integration between entities, compared with other conglomerates is also another constraint.

Further, Tata Sons has demonstrated financial support mainly during periods of financial stress as opposed to regular co-investments or capitalisation to maintain credit strength, as seen in conglomerates with a stronger group linkage.

A greater demonstration of ongoing support and operational linkages within the group could lead to a stronger assessment in the future.