S&P upgrades Tata Steel's rating to BB- on deleveraging, operating momentum

Global rating agency Standard and Poor’s has raised the credit rating of Tata Steel and its subsidiary ABJA Investment Co from ‘B+’ to ‘BB-‘ on deleveraging and strong operating momentum. Tata Steel Ltd's debt level is expected to decline materially in the next two years due to a strong cash flow and the company's stated intention to reduce debt.

In the base-case scenario, Tata Steel's adjusted debt could decline by about 30 per cent by March 2023 from the March 2020 level of about Rs 1 trillion, leading to steady improvement in credit metrics. About half of this decline is expected to have been delivered in 2020-21 (year ended March 2021). It has committed itself to reducing the absolute debt level by at least $1 billion per year from financial year 2021-22.

The rating agency said the company's free operating cash flows would be adequate to reduce debt over the next two years, even with the revised capital expenditure (capex) estimates of about Rs 90 billion per year, up from Rs 50-60 billion in the financial year 2020-21. “We believe Tata Steel will moderate its investment plans, if required, so as to meet this objective,” S&P said.

The company reported a sizeable debt reduction in 2020-21 on a stronger cashflow generation, recent equity raising of about Rs 33 billion, and working capital improvements of about Rs 120 billion.

The stable outlook reflects the expectation that the company would adequately deleverage over the next two years and build a comfortable headroom at the current rating level, it added.