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Business News/ Companies / News/  Moody’s upgrades Tata Steel
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Moody’s upgrades Tata Steel

Moody's upgrades Tata Steel's rating to Baa3, citing debt reduction efforts and improved credit metrics.

Moody’s has also changed the outlook for Tata Steel from positive to stable.Premium
Moody’s has also changed the outlook for Tata Steel from positive to stable.

New Delhi: Moody’s has upgraded Tata Steel Ltd’s long-term issuer rating to Baa3 investment grade, from Ba1, and changed the outlook from positive to stable, anticipating improvement in profit as it continued with its efforts to reduce debt, the credit rating agency said on Monday.

“The upgrade reflects the firm’s considerable deleveraging through gross debt reduction and our expectation that Tata Steel will maintain conservative financial policies with a well-balanced capital allocation and financial metrics appropriate for Baa3 rating," said Kaustubh Chaubal, a Moody’s senior vice president.

Its gross debt rose 10% after its 120 billion acquisition of Neelachal Ispat Nigam Ltd in July 2022. The change in outlook signifies the steelmaker’s improved credit metrics. The agency believes that this positive trend can be maintained as the firm continues to invest in and expand its capacity both in India and Europe. Moody’s is also confident that Tata Steel is committed to prudent capital allocation and financial policies, ensuring credit metrics in line with Baa3 rating. “The rating captures its exposure to the inherent volatility in steel prices and spreads, and historically volatile performance of European operations," it said.

The rating, according to the agency, aligns with Tata Steel’s substantial, globally competitive, vertically-integrated steel operation in India, and its sustained improvement in European operation, especially following the anticipated closure of the loss-making upstream operations in the UK.

“The upgrade reflects our expectation of the continued strength in Tata Steel’s credit profile due to the company’s solid market position in India. We expect its profitability to increase even as softer steel prices dent revenue," Chaubal added.

On 15 September, Tata Steel it entered a mutual agreement with the UK to invest in electric furnace steelmaking at the Port Talbot unit. This project involves a capital expenditure of £1.25 billion, including a £500 million grant provided by the local government.

This upgrade is based on the company’s resilient operations in a challenging industry environment, and significant boost in India’s steel consumption, at a compound annual growth rate of 7% by 2030. “One-off restructuring cost may need to be incurred, the electric arc furnace will transform its cost position in UK, and the blast furnace closure in the Netherlands will arrest the significant drain to earnings," it said.

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Published: 25 Sep 2023, 11:12 PM IST
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