New Delhi: Global rating agency Moody’s downgraded its credit rating on Tata Steel due to the firm’s deteriorating operating performance and warned of further downgrade in the wake of continuing demand and pricing slump in the industry.

The corporate family rating of Tata Steel has been downgraded to Ba2 from Ba1, Moody’s Investors Service said in a statement adding that the rating remains on review for possible further downgrade.

“The rating action reflects the deteriorating operating performance of the company, as a result of the dramatic reversal apparent in steel industry dynamics following, in turn, a sharp fall in demand and prices,” Moody’s analyst Ivan Palacios said.

Palacios further said: “The weakening in Tata Steel’s operating performance has impacted its financial strength, and its credit metrics are expected to deteriorate beyond the comfort levels anticipated at the time of the completion of its acquisition of Corus in 2007.”

A spokesperson for Tata Steel declined to comment on Moody’s action.

Further review of the company’s credit profile, Moody’s said that it would focus on the plan to resolve expected covenant compliance issues at Tata Steel-UK, the impact of a possible worsening in the operating environment on the group’s financial profile and the assessment of Tata Steel India’s ability and willingness to support Tata Steel-UK, if required.

Tata Steel-UK (formerly known as Corus) has the greatest negative impact on its financials and could require support in the form of an equity injection from Tata Steel-India, Moody’s said.

Moody’s believes that Tata Steel-India’s operations, which have enjoyed low costs and high margins, are not immune to the challenging nature of the market environment.

During October-December, 2008 (Q3), Tata Steel India’s EBITDA dropped by around 57% from Q2 to $306 million.