International credit rating agency Standard & Poor's (S&P) has announced that it has downgraded the global scale ratings of Indian steel producer Tata Steel to B+ from BB-, while its outlook for the company is negative.
S&P stated that this revision reflects its expectation that Tata Steel's credit ratios will not improve in the next 12-18 months, due to the coronavirus-led disruptions and the economic slowdown.
Besides, the negative outlook indicates risks of a further weakening of Tata Steel's credit profile if the effect of economic conditions and lower commodity prices are more prolonged than current expectations.
In the first nine months of the fiscal year 2019-20 ended March 31, 2020, Tata Steel's earnings had underperformed in relation to S&P’s expectations.
S&P stated that it expects the company’s production to decline around 15-20 percent in the fiscal year 2020-21 compared to the previous fiscal year. According to S&P, the company's Indian operations will be more resilient to these developments due to their relative cost competitiveness. S&P has expected a marginal 7-10 percent reduction in EBITDA in the fiscal year 2020-21 compared to the previous fiscal year.
The outlook of the company could be revised back to stable if the impact of the economic slowdown is less than S&P’s current expectation.