International credit rating agency Moody's has announced that it has affirmed the rating of Indian steelmaker
Tata Steel Limited (TSL) at Ba3 and that of its European subsidiary
Tata Steel UK Holdings Limited (TSUKH) at B3 and maintained the negative outlook on both companies' ratings.
According to Moody's, the profitability of the Indian business remains one of the highest in the industry. This will be supplemented by the start of a new 3 million mt per year plant in Odisha in early 2015. Once the Odisha project is fully operational, the European subsidiary will produce less than 50 percent of the group volume, significantly reducing
Tata Steel's reliance on the structurally less profitable European market.
Moody's notes that there was a brief hiatus in
Tata Steel's iron ore mining operations in May related to the validity of mining licenses in the state of Odisha, which triggered a total mining ban in the state. While
Tata Steel was given new in-principle permits to restart within days, many other mines remain closed.
Tata Steel now has to submit documentation and meet the conditions attached to the new permits but the onus is on the state to resolve the matter within six months. Moody's expects the licensing process to proceed smoothly for
Tata Steel, though the incident has thrown the spotlight on the availability of captive iron ore to
Tata Steel, which is fundamental to its high margins in
India.
Moody's stated that downward pressure for
Tata Steel's rating could result from slower than expected demand for steel in Europe, any disruptions to raw material supplies in
India or a slower than expected pick up in
India's economy leading to lower prices.