India Ratings puts Tata Steel on rating watch

Mumbai, April 12 (IANS) India Ratings and Research on Tuesday placed Tata Steel on rating watch following the latter’s announcement of restructuring its loss-making European operations, including divestment of its UK businesses.

“India Ratings and Research (Ind-Ra) has placed Tata Steel Ltd’s Long-Term Issuer Rating of ‘IND AA’ on Rating Watch Evolving (RWE). The outlook was Negative,” the Fitch group company said.

“The agency has also placed the ratings on all of the company’s debt instruments on RWE,” the agency said, indicating thereby, that the ratings could be either upgraded, downgraded or affirmed.

“While cutting down losses by curtailing overseas operations would be a credit positive for TSL, the uncertain timelines associated with this goal could delay the expected recovery in its credit profile.

“The extent to which the UK businesses will be divested, the timeline over which this is achieved, the amount realised from such divestiture, the amount by which debt is reduced and deleveraging achieved will be key factors for determining whether any change in the ratings is warranted,” it added.

Tata Steel on Monday began the formal process of selling its British steel company, announcing an agreement to sell its long products Europe business to investment firm Greybull Capital for a “nominal” consideration. The business employs 4,800 people — 4,400 in Britain and 400 in France.

“The deal will be completed once a number of outstanding conditions have been resolved, including transfer of contracts, certain government approvals and the satisfactory completion of financing arrangements,” Tata Steel said in a statement in London.

“Under these current challenging conditions in Europe with soaring levels of imports from China, we are happy Tata Steel UK and Greybull Capital have entered the final stage of completion of the sale of shareholding in long steel UK,” said Hans Fischer, chief executive for Tata Europe.

Having suffered nearly $3 billion in losses on its UK operations, Tata Steel had said this month that it will explore options to put its entire portfolio there up for sale, some 10 years after it forayed into Europe by acquiring the Anglo-Dutch Corus for over $8.1 billion.

Ind-Ra said the rating approach factors in a one notch uplift for the company’s strong operational and strategic linkages with the Tata Group, adding the sale of its UK businesses would enable the company to reduce losses substantially.

The business environment in the 2016 financial year continued to be aggravated by large scale imports of steel from Russia and China, it said.

The financial profile of the company has weakened and it essentially stems from the fall in realisations in both domestic and European operations, due to a weak demand together with large global overcapacity overhang, leading to a high level of cheap imports into India as well as Europe, it added.

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