Rating agency Moody’s Investors’ Service has upgraded Indian steel producer Tata Steel Limited’s long-term issuer rating to Baa3 investment grade from Ba1 and has changed its outlook from ‘positive’ to ‘stable’ anticipating improvements in profit and its efforts to reduce debt, the rating agency said in a statement on Tuesday, September 26.
“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,” Moody’s 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 operations, especially following the anticipated closure of the loss-making upstream operations in the UK.
On 15 September, Tata Steel announcement that it has 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 UK government.
“This upgrade is based on the company’s resilient operations in a challenging industry environment, and the significant boost in India’s steel consumption, at a compound annual growth rate of seven percent 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.