“In our view, Tata Sons and its subsidiaries and associates have become a more cohesive group in recent years.” S&P noted that the credit profile of Tata Steel is strengthened by its importance to Tata Sons Pte Ltd with potential for financial support. “We expect Tata Sons to have a positive influence on the long-term strategy and financial policies of its group entities,” the report said. This comes on the back of S&P’s estimation that Tata Sons will be increasing its ownership in the steel company. Tata Sons is already the largest shareholder in Tata Steel, owning about 34% stake.
“We believe Tata Sons will be open to increasing its ownership to the 40%-50% range seen in other key group entities. Tata Sons has supported previous equity offerings of Tata Steel in full,” it said. S&P Global has raised its issuer credit rating on Tata Steel and its subsidiary ABJA Investment Co Pte Ltd to ‘BBB-’ from ‘BB’. It has also raised the long-term issue rating on the senior unsecured notes issued by ABJA to ‘BBB-’ from ‘BB’ with a stable outlook. The agency has removed the ratings of Tata Steel from ‘CreditWatch with positive implications’ that it had placed on August 20, 2021.
The stable outlook by S&P reflects an expectation that Tata Steel will continue deleveraging to improve its resilience to downturns over the next 12-18 months. “The rating on Tata Steel is supported by strong deleveraging intent and continued robustness in steel prices,” the S&P report said. The agency’s adjusted debt estimate for Tata Steel will fall to about Rs 60,000 crore (about $8 billion) by fiscal 2023 from about Rs 91,500 crore as of end-March 2021.
A recent spike in coking coal prices is a risk to near-term profitability for Tata Steel and S&P expects an impact in the company’s Ebitda by $2.5-3.0 billion per year. “The company’s captive access to half its coking coal requirements for its Indian operations mitigates the risk to some extent… However, high input prices will likely support steel prices against our base-case expectation of a gradual normalisation in steel prices through fiscal 2023,” the report said.