Moody’s Upgrades Tata Steel And Its U.K Arm To Stable From Negative
Moody’s has withdrawn the probability of default rating for Tata Steel U.K.
Rating agency Moody’s upgraded its outlook on Tata Steel and its U.K subsidiary’s outlook to ‘stable’ from ‘negative’ citing a “benign” operating environment and recovery in financial performance.
At the same time, Moody’s has withdrawn the probability of default rating for Tata Steel U.K., it said in a report today.
The change in the ratings outlook to stable from negative reflects our expectation that the benign operating environment and recovery in the financial performance of Tata SAteel U.K. Holding and Tata Steel over the last few quarters will continue over a longer term, leading to a sustained improvement in its credit metrics.Kaustubh Chaubal, Moody’s Vice President and Senior Analyst
The Mumbai-based steel maker turned profitable during the previous quarter from the loss posted during the corresponding quarter last year, driven by the recovery in global steel prices and an increase in volumes.
Additionally, the rating agency noted that strong growth prospects, in particular, in Tata Steel’s key operating markets of India, Europe and South East Asia with apparent steel consumption slated to grow, amid capacity removals in China, augur well for Tata Steel.
In particular, Moody’s expects China's steel production capacity to continue to decline with the government's implementation of supply-side reforms and environmental protection measures. As for demand, Moody’s expects India's steel consumption to grow in the mid-single digits in 2017 and 2018, on the back of economic activity.
The change in the ratings outlook to stable also rests on Moody’s view that Tata Steel will maintain a cautious approach when evaluating expansions or potential acquisitions. “Large debt-funded investments, if any, that slow the pace of leverage correction could weigh on the ratings. However, given the significant improvement in operating and financial metrics, there is sufficient headroom under the ratings,” the Moody’s statement said.
A downgrade, Moody’s said, is unlikely given the return of the outlook to stable today.
That said, downward pressure could build if there is any reversal in the trajectory for leverage correction, as a result of a sudden shift in industry conditions, or if the company undertakes overtly aggressive investments or acquisitions.Moody’s Investors Services Report
