Moody's Investors Service on Tuesday placed under review for downgrade JSW Steel's Ba2 corporate family rating and the Ba2 senior unsecured rating.
The ratings outlook has been revised to ratings under review from stable. Moody's expects to conclude the review within 90 days.
The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets.
The combined credit effects of these developments are unprecedented. The steel sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment, said Moody's in a statement.
"More specifically, the weaknesses in JSW's credit profile including its exposure to steel demand for manufacturing and volatile material costs have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions, and it remains vulnerable to the outbreak continuing to spread."
In March, JSW announced that following the nationwide lockdown initiated by the government and various advisories from local and state governments, production at most of its plants has either scaled down or been suspended.
"The review for downgrade reflects our expectation that weak steel demand will strain JSW's credit profile, at least through the fiscal year ending March 2021," said Moody's Vice President and Senior Credit Officer Kaustubh Chaubal.
"In fact, there is a distinct possibility JSW will remain in breach of our downgrade triggers for its Ba2 CFR."
Even ahead of the coronavirus outbreak, sluggish economic growth, weak demand and narrow product spreads had led to a deterioration in JSW's credit profile. Profitability -- as measured by EBITDA per tonne -- for JSW's Indian steel operations declined by 30 per cent during the nine months ended December 2019 to Rs 8,168 from Rs 11,677 in fiscal 2019.
"The review reflects our concern that JSW will face significant challenges due to the coronavirus-led economic downturn with declining sales, weak earnings and free cash flow generation because of tepid demand from automakers, manufacturing and other steel consuming industries," said Chaubal.
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