S&P revises Tata Steel UK's outlook to stable from positive

Standard & Poor's Ratings Services today said that it had revised its rating outlook on Tata Steel UK Ltd. to stable from positive.

At the same time, the rating agency affirmed the 'BB-' long-term and 'B' short-term corporate credit ratings on the company and affirmed the 'BB+' issue rating on senior secured notes totaling GBP3.67 billion issued by TSUK and its subsidiary Corus Nederland BV (not rated) and issued a recovery rating of '1'.

S&P credit analyst Joey Chew said, "The outlook revision reflects the higher capital expenditure plans of Tata Steel UK's parent Tata Steel Ltd. (BB / Stable) in India, Tata Steel's overseas joint ventures in upstream resources to secure raw materials, and uncertainties over the parent's equity-raising plan of US$1 billion, given the prevailing capital market conditions."

The affirmed issue rating is two notches higher than the corporate credit rating on Tata Steel  UK to reflect the recovery rating of '1', indicating recovery prospects of 90 per cent to100 per cent, as per S&P's criteria.

For the fiscal year ended March 31, 2008, Tata Steel UK and its subsidiaries reported an EBITDA margin of about 8.8 per cent, which was "within our expectations," Chew said.

Tata Steel UK has been able to pass some of the higher costs for raw materials, such as iron ore, to its end buyers.

The credfit rating agency said, "The actual operating lease adjusted (OLA) ratio of funds from operations (FFO) to total debt of 11.6 per cent was below our expectations, largely reflecting higher debt."

It added weakening steel demand and prices have led to further downward pressure on operating margins and cash flows, and we therefore expect the OLA ratio of FFO to debt to remain below 20 per cent.