S&P raises ratings on Tata Steel and UK arm

Standard & Poor's today said that it had revised its outlooks on India-based Tata Steel Ltd and the former Corus plc, now its UK subsidiary Tata Steel UK Ltd to stable from negative.

At the same time, it has affirmed the 'BB-' long-term corporate credit rating on Tata Steel and the 'BB-' issue rating on the company's senior unsecured notes. The rating agency also affirmed the 'B+' long-term and 'B' short-term corporate credit rating on Tata Steel UK.

"We revised the outlook as we believe the potential pressure on Tata Steel UK's liquidity has eased following the refinancing of a £3.67 billion bank loan. The refinancing also reduces the potential pressure on parent Tata Steel's liquidity," said Standard & Poor's credit analyst Mehul Sukkawala.

Sukkawala added, "We view Tata Steel UK as a strategic subsidiary of Tata Steel, and believe that the parent will continue to support the company, if required."

Tata Steel's consolidated operating performance has improved over the past year, especially with a turnaround at Tata Steel UK. Tata Steel's consolidated EBITDA margin was about 17 per cent for the six months ended 30 June 2010, compared with negligible margins for the same period last year.

The companies' operating performance remains susceptible to any weakness in the tentative global economic recovery, particularly in Europe. In addition, it remains exposed to volatile steel and raw material prices.

"Tata Steel's and Tata Steel UK's financial metrics have improved. We expect metrics to further improve in the fiscal year ending 31 March  2011. We, however, believe that Tata Steel's financial risk profile remains aggressive, and Tata Steel UK's highly leveraged," S&P said in a statement.

Tata Steel and Tata Steel UKhave adequate liquidity, it added. "The companies' liquidity positions have improved with the refinancing of debt at Tata Steel UK by a new bank loan and a revolver credit facility totaling £3.53 billion. The new bank loan lengthens the repayment schedule and will enable Tata Steel UK to significantly reduce its repayment obligations for the next four to five years. In addition, it carries lighter financial covenants, which Tata Steel UKcan easily meet, and shields the company from any potential downturn in the operating environment."