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Tata Steel UK outlook revised to stable from +ve
Standard & Poor's Ratings Services said today that it had revised its rating outlook on Tata Steel U.K. Ltd. to stable from positive. At the same time, Standard & Poor's affirmed the 'BB-' long-term and 'B' short-term corporate credit ratings on the company.
Standard & Poor's Ratings Services said today that it had revised its rating outlook on Tata Steel U.K. Ltd. (TSUK) to stable from positive. At the same time, Standard & Poor's affirmed the 'BB-' long-term and 'B' short-term corporate credit ratings on the company. We also affirmed the 'BB+' issue rating on senior secured notes totaling GBP3.67 billion issued by TSUK and its subsidiary Corus Nederland B.V. (not rated). The recovery rating is '1'.
"The outlook revision reflects the higher capital expenditure plans of TSUK's parent Tata Steel Ltd. [BB/Stable/--] in India, Tata Steel's overseas joint ventures in upstream resources to secure raw materials, and uncertainties over the parent's equity-raising plan of US$1 billion, given the prevailing capital market conditions," said Standard & Poor's credit analyst Joey Chew.
The affirmed issue rating is two notches higher than the corporate credit rating on TSUK to reflect the recovery rating of '1', indicating recovery prospects of 90%-100%, as per our criteria.
For the fiscal year ended March 31, 2008, TSUK and its subsidiaries reported an EBITDA margin of about 8.8%, which was within our expectations. TSUK has been able to pass some of the higher costs for raw materials, such as iron ore, to its end buyers. The actual operating lease adjusted (OLA) ratio of funds from operations (FFO) to total debt of 11.6% was below our expectations, largely reflecting higher debt. Weakening steel demand and prices have led to further downward pressure on operating margins and cash flows, and we therefore expect the OLA ratio of FFO to debt to remain below 20%.
