Fitch Ratings Downgrades Tata Steel's Outlook To 'Negative' Due To Uncertainty In UK operations
The $1 billion notes due in July issued by Tata Steel's subsidiary ABJA Investment Co. Pte. have also received a 'BBB-' rating.
Fitch Ratings has revised the outlook on Tata Steel Ltd.'s Issues Default Rating to 'negative' from the earlier 'stable' due to uncertainty around the improvements in the company's UK operations. It has affirmed the IDR at 'BBB-'.
The $1 billion notes due in July 2024 issued by Tata Steel's subsidiary, ABJA Investment Co. Pte., have also received a 'BBB-' rating, the rating agency said in a statement on Friday.
The negative rating by the agency is due to difficulty in achieving operational improvement in the UK and the risk of sustained Ebitda leverage above 3.0 times. However, if there is a turnaround in the UK operations and there is improvement in the Ebitda levels, then it could lead to a stable outlook, Fitch Ratings said.
It has also forecasted that the company's EBITDA would see a 50% jump to around Rs 31,100 crore due to growth in Indian volume and higher profitability at the Netherlands operations.
There are uncertainties regarding Tata Steel's plan to replace blast furnaces at Port Talbot, UK, with a more cost-efficient electric arc furnace with a steelmaking capacity of 3 million tonne per annum by 2027. Delays in this plan could result in higher-than-anticipated Ebitda losses in the UK operations, Fitch said in its report.
The company is expected to see increased debt due to negative free cash flow, driven by substantial investments in capacity expansion in India and restructuring costs in the UK over the next two years. Fitch projects that capital expenditures will remain relatively stable in FY25 before increasing in FY26.
The agency also expects the sales volume to see a 5% uptake in this fiscal and an 8% jump in the next fiscal.
