By Tan Hwee Ann/Bloomberg
Melbourne: Tata Steel Ltd, which is spending 6.2 billion pounds ($12 billion, Rs52,000 crore) on an acquisition, and other steelmakers and miners in Asia may face pressure on their credit ratings due to spending and rising costs, Standard & Poor’s said.
Tata, Vedanta Resources Plc, G Steel Pcl and Asia Aluminum Holdings Ltd retained their “negative” or “watch-negative” outlook, according to an e-mailed report by Standard & Poor’s. Another nine companies surveyed have a “stable” outlook.
Metal prices have surged in the past five years, generating record profits for miners globally and spurring more than $240 billion of mergers and takeovers bids last year in the mining and steel industry. BHP Billiton Ltd, the world’s largest miner, last month announced a $10 billion shares buyback plan.
“Asia’s resources companies are largely using higher profits and cash flow to pay larger dividends, buy back their own stock, make acquisitions, and build or expand mines,” analysts Peter Stephens and May Zhong said. “At the same time, energy, labour and other input costs aren’t abating, putting further pressure on debt levels.”
Standard & Poor’s didn’t change the ratings of any company in the report, nor any of the rating outlooks.
Tata Steel’s acquisition of Britain’s Corus Group Plc could have “an adverse impact on its financial risk profile,” the ratings company said. Standard & Poor’s was also concerned about a plan by Vedanta Resources, India’s largest producer of copper and zinc, to invest $1.9 billion to build a power plant.
Tata Steel has a “BBB” rating, which is so-called investment grade. Vedanta Resources has a “BB” rating, Asia Aluminum has “BB-” and G Steel has a “B+” rating, all of which are non-investment grade, according to Standard & Poor’s. A company that has a negative credit outlook suggests its rating may be reduced.
Investors use credit ratings to determine how likely a company is likely to repay its bonds.
The agency retained its credit outlook other companies surveyed on “stable.” They include BHP Billiton, Baosteel Group Corp., China’s largest steelmaker, and PT Adaro Indonesia, the country’s largest coal producer.