Moody's changes Tata Steel's outlook to negative

Moody's Investors Service has affirmed the rating of Tata Steel Ltd., a family-owned company Baata. at Ba2 and revised its outlook to Negative from the pending ratings. At the same time, Moody's has affirmed B3 CFR of Tata Steel UK Holdings Limited, a wholly owned subsidiary of Tata Steel, and revised its outlook to negative. Subsequently, Moody's will recall B3 CFR TSUKH for its own business reasons. This concludes the downgrade review that began on April 15, 2020.

Moody's Vice President and Senior Credit Officer Kaustub Chaubal said: “Ba2 CFR Confirmation Tata Steel recognizes that while the company's credit profile will deteriorate due to problems caused by the pandemic, its key financials are likely to recover to levels in line with its fiscal year ending in March 2023. However, Tata Steel's leverage and coverage will remain weak through FY2023, and the negative outlook indicates a risk of a downgrade if the metals industry and the company's financial performance do not recover in line with our current expectations. ".

Moody's expects steel consumption in India (Baa3 negative), which is Tata's main operating market, to contract at least 15% during fiscal 2021 due to weak demand for cars and manufacturing, even as infrastructure investment rises. India's economic growth will also remain substantially lower than in the past, with real GDP in 2020

will decrease by 3.1%. A shrinking steel market in India will hurt Tata, but this is partially mitigated by the company's strong market position and brand strengthening in the country. Moody's expects Tata Steel to use any surplus steel for export. The company's export shipments rose in the first quarter of fiscal 2021, when domestic demand was weak. Main export destinations: Philippines, Malaysia, Southern Europe, the Middle East and China.

Moody's expects steel consumption in the euro area to decline by double digits. TSUKH's credit profile, which reflects Tata Steel's European operations, will remain weak and slightly improve over the next 12-18 months, especially given challenging industry conditions and continued influx of imports into the European region, which is weighing on steel prices. In addition, weak plant utilization due to lower steel demand will put additional pressure on TSUKH's financials, with leverage remaining above 15x for at least the next 18-24 months.

However, the absence of any debt maturity at TSUKH over the next five years provides a significant cushion of liquidity. The company is also in the process of obtaining a five-year 150 m2 loan