Fitch downgrades Tata Steel, Corus outlook to negative

12 Nov 2008

Fitch Ratings on Tuesday said it has revised the rating outlook on Tata Steel and Corus to negative from stable, on concerns that parent company Tata Sons may not be able to support Tata Steel after a sharp drop in its investments.

While the parent company (Tata Sons)’s credit profile continues to remain strong and its willingness to provide support to Tata Steel remains unchanged due to Tata Steel’s flagship status, the ability to provide this support has weakened substantially.

Fitch also said that continued lower steel prices across Europe (including UK) could potentially impact Corus’ standalone profitability. While Tata Steel’s Indian operations would continue to generate strong cash flows, credit metrics for Corus could potentially deteriorate, leading to a breach of the consolidated net financial leverage trigger of 3.5x, resulting in a negative rating action.While the capex plans of $10.95 bn for the next three years are higher than earlier estimates, Fitch also notes that greenfield projects in India continue to remain exposed to regulatory risks leading to uncertainty on timing and are somewhat discretionary in nature.

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