Standard & Poor''s today revised its corporate credit rating on Tata Steel Ltd. to ''BB'' from ''BBB'' earlier with a positive outlook.

The 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).

At 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.

"The rating on Tata Steel reflects the consolidated credit profile of the company and its subsidiaries, including Corus," said Standard & Poor''s credit analyst Anshukant Taneja.

Tata 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.

Notwithstanding 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.

The $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.

The ''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.

"In 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.

The 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.

"The 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.