Tata Steel's decision to sell British operations credit positive: Moody's

Credit rating agency Moody's Investors Service (Moody's) on Friday said Tata Steel Ltd's decision to restructure its British operations is credit positive but there is no immediate impact on its ratings.

In a statement, Moody's said Tata Steels planned restructuring/divestment of its British businesses is credit positive because it will reduce some of the negative pressure on its operating performance.

But pending finalisation of the restructuring plan and the uncertainty around the extent of improvement in the credit profiles of Tata Steel and Tata Steel UK Holdings Limited (TSUK Holdings), there is no immediate impact on the ratings on Tata Steel (Ba3 negative) and TSUK Holdings (B3 negative), it said.

On March 30, Tata Steel announced that it would explore all options in restructuring its wholly-owned subsidiary, Tata Steel Europe Limited (unrated), including the potential divestment of its step-down operating subsidiary, Tata Steel UK Limited (TSUK, unrated), in whole or parts.

"The potential sale of the UK operations is credit positive for Tata Steel and TSUK Holdings, because it would dispose of loss-making assets, against the backdrop of a challenging operating environment; namely depressed steel prices and a situation where global steel supply continues to exceed demand," said Moody's vice president and senior analyst Kaustubh Chaubal.

With the impact of the loss-making TSUK operations being addressed, Moody's expects TSUK Holdings' operating performance to improve, based on the expectation that steel demand in Europe will increase by 1-1.5 percent in 2016, and the imposition of anti-dumping duties by the European Commission in February 2016 on steel imports from China and Russia.