Brickwork Ratings, a SEBI-registered credit rating agency, has downgraded Tata Steel’s credit rating with a negative outlook citing “heightened management risk” and “lack of clarity at group-level management” which may impact its strategic-decision making process following the ouster of Cyrus Mistry as Chairman of Tata Sons.
The present action reflects uncertainty over vital decisions such as cost-cutting and de-leveraging the balance sheet concerning the unprofitable U.K. operations and restructuring its European business consequent to the recent sudden change in top management at Holding Company/Group Level, it said.
“Brickwork Ratings revises rating to ‘BWR AA’ with Negative Outlook from BWR AA+ with Stable Outlook for the unsecured Non Convertible Debenture (NCD) issues of Rs. 4,000 Crore. Brickwork Ratings also revises rating to ‘BWR AA-’ with Negative outlook from BWR AA with Stable outlook for the unsecured subordinated perpetual Debt Issue of Rs. 2,500 Crore of Tata Steel Ltd,” Brickwork stated in its ratings note.
The revised rating, however, continues to place the company in the ‘high degree of safety’ category with regard to the services to debt.
The rating continues to factor in the company’s diversified product portfolio, backward integrated India operations in the form of captive iron ore and coal mines making it one of the lowest cost producers of steel, large market share in steel industry, commencement of operations at the Kalinganagar plant in Odisha, professional management and group support enjoyed by the company, said Brickwork Ratings. adding that It added that the rating positively factors that the Minimum Import Prices (MIP) introduced by Government of India is expected to increase realisations.
The rating is however constrained by the sluggish demand growth in Europe, volatility in prices of raw material and high dependence on imports of raw material for European operation. The rating is also constrained by high consolidated financial leverage with overall deterioration in gearing, primarily due to the loss-making UK operations, Brickwork Ratings added.
