& Poor''s today revised its corporate credit rating on Tata Steel Ltd. to ''BB''
from ''BBB'' earlier with a positive outlook.
company has also been removed from from CreditWatch, where it was placed on 18
October, 2006, with negative implications after its announcement on acquiring
Corus Group PLC (Corus, BB-/Stable/B).
the same time, the ratings on Tata Steel''s senior unsecured bank loans of $750
million and $500 million have been lowered to ''BB'' from ''BBB.'' The rating downgrade
reflects the impact of the leveraged acquisition financing on the risk profile
of the consolidated entity.
rating on Tata Steel reflects the consolidated credit profile of the company and
its subsidiaries, including Corus," said Standard & Poor''s credit analyst
Steel intends to fund its $12.9 billion acquisition of Corus primarily through
debt, which is legally structured as non-recourse to the parent company.
this arrangement, Standard & Poor''s considers that the size and strategic
significance of Corus and its prominence in the future plans of Tata Steel
create substantial economic incentive for Tata Steel to support Corus.
$3.2-billion of equity investment proposed to be made by Tata Steel, including
the infusion from its parent company Tata Sons Ltd., supports this view and emphasizes
the need to look at both companies as a single economic entity.
''BB'' rating on Tata Steel primarily reflects its significantly weakened financial
profile, as a result of the substantial debt included in the proposed financing
structure for the acquisition of Corus.
addition, the rating remains constrained by the weak business profile of Corus,
which is characterised by lack of integration or upstream linkages and relatively
high cost of operations in the United Kingdom, resulting in lower-than-average
operating profitability," Taneja noted.
rating on Tata Steel is supported by the enhanced scale of the combined entity
in the rapidly consolidating steel industry, the broader market coverage and client
base, and the higher contribution of value-added products in the business portfolio
of the combined entity.
positive outlook reflects the likelihood of a one-notch upgrade in the rating
on Tata Steel to ''BB+'' upon its issuance of the proposed hybrid securities ($2.56
billion) and new equity ($545 million), accompanied by a reduction in total debt
by this amount, all other elements
of the transaction remaining intact," said Taneja. The outlook also factors
in the infusion of $1.9 billion from Tata Sons in the near term.