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Fitch maintains ratings watch evolving on Tata Steel’s ‘BB’ Issuer Default Rating

The European Commission is reviewing Tata Steel’s planned 50:50 joint venture with Thyssenkrupp and has set a May 13 deadline for its decision.

ET Bureau | Mar 26, 2019, 08.32 AM IST

Fitch said it awaits details of the corporate structure, business profile and financial plans for Tata Steel UK to resolve the Rating Watch.Fitch Ratings

maintained its Ratings Watch Evolving on Tata Steel’s ‘BB’ longterm issuer default rating (IDR) and

Tata Steel

UK Holding’s ‘B’ long-term IDR as it awaits the outcome of the European Commission’s review of the company’s proposed joint venture with Thyssenkrupp. While Tata Steel and Thyssenkrupp are committed to completing the transaction, the deal may be delayed if the

European Commission

calls for changes due to competition issues, Fitch said. Another key ratings driver was a moderation in global and domestic steel prices despite strong demand, which is expected to lower margins.

The European Commission is reviewing Tata Steel’s planned 50:50 joint venture with Thyssenkrupp and has set a May 13 deadline for its decision. In October, the commission raised preliminary competition concerns around certain specialty flat carbon steel and electrical steel products to be made by the proposed JV. “The partners remain committed to completing the transaction by Q219, but we think the deal may be delayed if the European Commission demands significant changes to the proposed business structure. Fitch awaits completion of the process for the proposed JV to resolve the Rating Watch Evolving on TSL’s ratings,” Fitch said in a statement on Monday.

Fitch said TSL’s reported consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 45% in the first nine months of the financial year ending March 2019, due to higher margins from India, improved steel prices and consolidation of earnings from Bhushan Steel, which it had acquired. However, global steel prices have moderated since October and domestic prices have followed suit, despite relatively strong finished steel consumption growth of about 8% year on year in Q3 of FY19, it said. “We expect global steel prices and producers’ margins to fall in 2019 and have assumed a 20% decrease in TSL’s standalone EBITDA/tonne in FY20 in US dollar terms. Margins are likely to be lower, but we do not forecast an abrupt squeeze such as that seen in 2015,” Fitch said. Fitch said it awaits details of the corporate structure, business profile and financial plans for Tata Steel UK to resolve the Rating Watch.

Source

Prakash Poojary
Business Analyst

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