September 07, 2008

S&P downgrades TATA Steel credit rating to \'BB\'

Rating agency Standard & Poor's has downgraded TATA Steel's corporate credit rating to stable 'BB' from positive, while assigning the same rating to the company's unsecured bank loans totaling USD 1.25 billion.

The downward revision was prompted by the uncertainty over infusion of additional equity as per the initial plans for the acquisition of Corus and some increase in capital commitments, specifically for its expansion projects in India.

Mr Anshukant Taneja analyst at S&P said that "TATA Steel's initially proposed plan of issuing hybrid securities of USD 2.56 billion and equity of USD 500 million to partially fund the USD 14 billion acquisition of Corus has been deferred due to prevailing credit market conditions."

Standard & Poor's observed that concurrently, TATA Steel has accelerated the execution of some of the expansion projects in India, especially that for adding 2.9 million tonnes per annum capacity at an outlay of USD 2.3 billion and another 3.9 million tonne Greenfield project in Orissa worth USD 3.9 billion. The total cost of these projects have also risen about 20% from the initial estimates given by the company due to widening of scope and inclusion of mining related investments in the project costs.

Mr Taneja said that "These events, along with potential investments in upstream coal and limestone resources, limit the upside potential of the current ratings."

S&P added that volume growth and synergy gains, which have been in line with expectations, also add to the stability of current ratings. Geographical and product diversity have also increased, a positive development for the overall risk profile of the company.