Moody's upgrades Tata Steel UK Holdings' rating to B2 with stable outlook

Moody's Investors Service today said it has upgraded Tata Steel UK Holdings Ltd's corporate family rating from B3 to B2 with stable outlook.

Meanwhile, Moody's affirmed Tata Steel Ltd's Ba3 corporate family rating and changed the rating outlook to positive from stable, the global rating agency said in a statement.

"Today's rating actions reflect our expectation that the credit profiles of Tata Steel and TSUKH (Tata Steel UK Holdings Ltd) will continue to improve, with their respective strengthening credit metrics tracking our upgrade triggers," Kaustubh Chaubal, Moody's Vice President and Senior Credit Officer said in a statement.

The upgrade in TSUKH's corporate family rating to B2 reflects Moody's expectation that the steady improvement in the company's operating performance with EBITDA/tonne remaining positive for eight consecutive quarters since June 2016, will be sustained over the next 12 months.

The positive outlook on Tata Steel's corporate family rating reflects the improvement in TSUKH's operations that have long been a drag on consolidated metrics and the company's strengthening business profile in India.

Tata Steel's key market remains India, which accounts for 48 per cent of its global steel volumes sold, 45 per cent of its consolidated revenues, but 72 per cent of its consolidated EBITDA, a result of the strong operating environment and the company's backward integration into producing its key own raw materials -- iron ore and coking coal.

India's steel sector is in a consolidation phase with distressed steel assets -- representing close to 18-20 per cent of the country's steel-producing capacity -- likely to find suitable buyers within the next 9-12 months.

Most distressed mills are currently operating below optimal levels because lack of funding for their working capital needs.

Industry consolidation will lead the sector's capacity utilisation levels to above 80 per cent and result in better pricing discipline and will benefit the country's large, established steel companies, such as Tata Steel.

On May 14, Tata Steel received the approval of the National Company Law Tribunal for the acquisition of a 72.65 per cent stake in Bhushan Steel Ltd for Rs 1.6 billion.