Tata Steel Ltd.

Moody’s Investors Service has downgraded both Tata Steel and its UK subsidiary Tata Steel UK (Corus) by a notch. The corporate family rating of Tata Steel was lowered to Ba3 from Ba2, while Tata Steel UK to B2 from B1. The rating action concludes the review for possible downgrade initiated on January 12.

The rating action reflects the anticipated weakening of Tata Steel’s consolidated financial profile over the intermediate term, driven by the weakness in the steel markets and the significant operating challenges faced by the company’s European operations.

While Tata Steel operations have enjoyed better margins due to their globally competitive cost position, backed by a significant degree of vertical integration, the extent of the deterioration in operating performance was greater at the company’s European operation — Tata Steel UK — because of its higher fixed-cost structure, and its lack of captive raw materials

Reduced cash flow generation and increased leverage to support Tata Steel UK are putting pressure on Tata Steel India’s credit profile. Moody’s last rating action on Tata Steel was on March 4, when it downgraded the rating to Ba2 from Ba1 and placed the rating on review for possible further downgrade.