S&P lowers ratings of Tata Steel and its UK subsidiary to negative

Global credit rating agency Standard & Poor's Ratings Services has revised the ratings of Tata Steel Ltd and its UK-based subsidiary Tata Steel UK Holdings Ltd to negative from stable. Standard & Poor's also affirmed its 'BB' long-term corporate credit rating of Tata Steel and its 'BB' issue rating of the company's senior unsecured notes.

At the same time, S&P also affirmed the 'B+' long-term and 'B' short-term corporate credit ratings on Tata Steel UK Holdings. We also lowered the recovery rating on Tata Steel UK Holdings' £3.53 billion bank loan to '2' from '1' and the issue rating to 'BB-' from 'BB'.

"We revised the outlooks to reflect the poor performance of Tata Steel's wholly owned European subsidiary, TSUKH," said Standard & Poor's credit analyst Suzanne Smith.

S&P said the assessment of Tata Steel has been on a consolidated basis, including TSUKH, which represents about half of the company's total consolidated assets. S&P expect the company's consolidated profit margin to continue to be weak, resulting in its debt-to-EBITDA ratio staying above 4 times, until the company's India operations receive the full benefit of a recently commissioned 3 million tonne annual capacity. These benefits are expected to accrue only in the fiscal year ending 31 March 2014.

S&P said it would lower the rating on Tata Steel further if the company's consolidated operating performance does not recover in line with its expectations. S&P also saw a chance of Tata Steel's European operations slowing further due to further slowing of the European economies.

''A double dip in the European economy or worsening steel industry conditions in India would result in EBITDA per tonne of about $300 or lower, further hurting Tata Steel's financial ratios,'' S&P said in its rating report.