S&P lifts Tata Steel rating, cites strong cash flow

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S&P lifts Tata Steel rating, cites strong cash flow


SINGAPORE: S&P Global Ratings on Tuesday raised its issuer credit rating on Tata Steel and its subsidiary ABJA Investment Co Pte Ltd to BB-minus from B-plus.

It also raised long-term issue rating on senior unsecured notes issued by ABJA.

S&P said the benefits of strong cash flows and management’s commitment to lower debt should help Tata Steel to materially deleverage over the next two years.

It estimated adjusted debt levels for Tata Steel will decline by about 30 per cent by March 2023 from about Rs 1.1 lakh crore in March 2020. About half of this decline is expected to have been delivered in fiscal 2021 (year ended March 2021).

Tata Steel has committed to reducing absolute debt levels by at least one billion dollars (about Rs 7,240 crore) per year from fiscal 2022.

The company’s free operating cash flows will be adequate to facilitate this reduction over the next two years, even with revised capital expenditure (capex) estimates of about Rs 9,000 crore per year, up from Rs 5,000 crore to 6,000 crore in fiscal 2021.

S&P said Tata Steel will moderate its investment plans if required to meet this objective. The company reported sizable debt reduction in fiscal 2021, thanks to stronger cash flow generation, recent equity raising of about Rs 3,300 crore and working capital improvements of about Rs 12,000 crore.

However, S&P said it treats as debt substitution some of Tata Steel’s working capital-related debt reductions in fiscal 2021, like Rs 6,000 crore in export advances and securitisation of receivables at Tata Steel Europe (with a facility size of 475 million pounds).

This implies a comparatively lower level of deleveraging compared with the company’s reported numbers.



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