Following the insertion of Corus Group on Tata Group's balance sheet, global credit rating agency Moody's has downgraded Tata Steel Ltd's corporate family rating from investment to speculative.
However, it said the outlook for Tata Steel is stable. Moody's warned that rating may be downgraded further if Tata Steel experiences delays or cost-over-runs in execution of various expansion projects, fall in steel prices or failure in integrating the two businesses and realising synergies.
"Tata's main challenge is to de-risk the enlarged capital structure without neglecting existing operations and opportunities for growth in Asia," Moody's said in a statement.
Moody's
said it expects Tata Steel's ambitious capacity expansion plan to lead to higher project execution risk over several years and materially elevate financial leverage, but added that current high leverage limits the company's financial strength and flexibility.
Earlier, Fitch Ratings had assigned a long-term foreign currency issuer default rating of 'BBB-' to Tata Steel Ltd with a stable outlook.
Fitch had said it had assessed the consolidated financials of Tata Steel and Corus in assigning the rating, saying while the acquisition is partly funded by debt on a non-recourse basis, the strong management and strategic ties between the two entities outweigh the weak legal ties.
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