Moody's affirms Tata Steel rating

Moody's Investors Service today affirmed the credit ratings on Tata Steel as well as Tata Steel UK Holdings, saying that their profitability and cash generation are unlikely to deteriorate in the next 12 months.
The global rating agency has maintained the negative outlook on the two entities.
"Moody's views a deterioration of TSL and TSUKH (Tata Steel UK Holdings) profitability and cash generation as unlikely in the next 12 months but against a backdrop of elevated leverage and further negative free cash flow in the current year, the risks of a downgrade have not fully abated," Moody's Investors Service said in a statement.

However, as further evidence of a more sustained recovery emerges, ratings could return to stable over the coming quarters, Moody's said.
While Tata Steel has been given corporate family rating of 'Ba3', TSUKH's corporate family rating and probability of default ratings are 'B3' and 'B3-PD', respectively.
Even though the European operations have delivered six quarters of positive EBITDA, Moody's said that it regards the recovery as being somewhat fragile with few end user markets other than vehicle manufacturers being soundly supported.
"TSUKH's restructuring measures have kept it cost competitive and enabled it to benefit from the pick-up in the European demand despite the continuing weak prices environment," the statement said.

Alan Greene, a Moody's Vice President - Senior Credit Officer, said that despite the improvements at TSUKH, driving down its excessive leverage in a environment of weakening prices, even if the price of iron ore is also lower, is a struggle.