Moody's to upgrade ratings of Tata Steel, British arm

Review upgrade has been triggered by issuance of $1.5 bn worth bonds by ABJA Investment, guaranteed by Tata Steel

Moody's Investors Service today said it has put Tata Steel's corporate family rating of Ba3 and British arm's corporate family rating of B3 on review for upgrade, following the successful sale of unrated debt worth $1.5 billion last week.

The international rating agency also said it will be upgrading other ratings of the Group such as Tata Steel UK's probability of default rating of B3-PD and the B3/LGD 3 (49 per cent) rating of its term loan facility.

The review upgrade has been triggered by the issuance of $1.5 billion worth bonds by ABJA Investment, guaranteed by Tata Steel, and rapid progress made on the refinancing of British unit's senior facilities agreement, it said in a note.

The note, issued from Singapore, has been prepared by Moody's Asia Vice-President for corporate finance group Alan Greene and its Managing Director Philipp L Lotter.

"On the back of improving sentiment in Europe and India, Tata Steel has been able to make swift progress on the refinancing of its European assets and opportunistically tap global markets to lock in cheaper funding for the group," the rating agency said.

The review will focus on assessing the terms and conditions of the refinancing and its implications for the links between Tata Steel Britain and its parent, as well as the operational profiles of both the British arm and Tata Steel, Greene and Lotter said.

They noted the UK arm has improved the cost profile of its plants and generated five consecutive quarters of positive Ebitda despite a fragile recovery in European demand.

However, the agency has warned that while it expects Tata Steel UK to maintain positive Ebitda in FY15, with Ebitda per tonne at USD40/t, and reduce its reliance on the cash support from its parent, it is unclear how it can sustainably return to positive cash flow and pay back the debt. The Group as a whole has close to Rs 75,000 crore debt.

"Tata Steel's Ba3 rating has been held back by Tata Steel UK's weak performance in recent years. With the British arm now on a better footing both operationally, and financially, the strength of the parent can better benefit the Group," said Greene, who is the lead analyst for Tata Steel.

Tata Steel, on a standalone basis, has consistently been one of the most profitable steel companies globally. Despite its strength, terms of the current British arm's loan would cause challenges for the Group in September 2015, the global rating outfit said.