S&P upgrades Tata Steel to stable

At the same time, agency affirms 'BB-' long-term and 'B' short-term corporate credit rating

Standard & Poor's Ratings Services said today that it had revised the outlook on Tata Steel UK Holdings (TSUKH) to stable from negative. At the same time, the agency affirmed its 'BB-' long-term and 'B' short-term corporate credit rating on TSUKH.

The recovery rating on TSUKH's £3.53 billion bank loan is unchanged at '2'. We also affirmed the 'BB' issue rating on the company's bank loan, a report from the rating company stated.
 
"We revised the outlook on TSUKH in line with our revision in the outlook on the parent company Tata Steel Ltd," said Standard & Poor's credit analyst  Vishal Kulkarni. "We view TSUKH as "highly strategic" to Tata Steel and will  continue to receive support from the parent. We assess the parent's group credit profile as 'bb'", he further added.  

 

"We believe Tata Steel is fully committed to supporting TSUKH because it considers the subsidiary to be a strategic investment. The companies share a common name. Tata Steel also intends to maintain good banking relationships with the common lenders of TSUKH. Nevertheless, TSUKH's operating performance is significantly weaker than our initial expectations and the company has a significantly weaker competitive position than the overall group," S&P stated.

Tata Steel's stock on the Bombay Stock Exchange hit a high of Rs 571.50 and was trading at Rs 562.10, up 0.02 per cent compared to its previous close.
 
"We continue to assess the stand-alone credit profile of TSUKH as 'b'. This reflects the company's weak operating efficiency and competitive advantage that stems from the lack of raw material integration, and exposure to volatility in prices," said Kulkarni.

 
The high cost of production in TSUKH's plants in UK and the company's low capacity utilization in Europe underpin its below-average profitability compared with industry peers. The poor profitability and high debt levels have kept the company's financial metrics very weak.