No change in ratings of Tata companies, says Moody's Chaubal

A: Tata Motors for instance has a corporate family rating of BA-I with a stable outlook and that incorporates a one notch uplift of support from Tata Sons. Had it not been for the support the rating would have been BA-II. So, it is the intrinsic credit quality of the operating entities plus one. So, in the case of Tata Motors it is BA-II plus 1. In the case of Tata Steel and Tata Power it is B-I plus 1 and in the case of case of Tata Chemicals again similar to Tata Motors it is BA-II plus 1.

Reema: So, in the event of a situation in which Tata Sons has to withdraw support these companies will see a downgrade in rating, right?

A: In that event but our ratings incorporate the view that there is no change in either individual operating company strategy or in Tata Sons support to the operating companies.

Reema: How have you read this entire saga? It has been going on for a little more than one month now between Ratan Tata as well as Cyrus Mistry. Has it in your conversation with the group companies, has it impacted the operating performance, does it in anyway make you assess or review your rating on the group companies?

A: No, our ratings incorporate the view that there is no change in either operating strategy for the individual companies or in terms of support from Tata Sons to the group companies. So, we are not expecting any changes. Of course should any facts emerge, should these things develop such that there is any deviation to our assumptions then we will review our ratings and the uplift, but at this point in time we believe that there is no change in either operating strategy or support from the parent Tata Sons.Prashant: You are talking about four companies in this report. Which companies are most critically dependent on Tata Sons’ support according to you?

A: There are these four companies that benefit from a notch up but in terms of credit quality, Tata Power and Tata Steel are the ones that are rated at the lower end of the spectrum in terms of BA-III and Tata Motors and Tata Chemicals are at BA-I.

Reema: If in the upcoming extraordinary general meetings (EGMs), which are scheduled towards the end of this month, if Mr Cyrus Mistry is ousted as a Director and Chairman, would that in any way make a difference to your ratings?

A: I cannot comment. It is up to the individual shareholder to decide. The way we would approach is does any of this impact the operations of strategy of the companies. So far, there is no reason to believe so. If there are any developments on that front, we may need to review.

Prashant: You also, at one point, mentioned that if there is a change in strategy and that leads to increase aggressiveness that may affect ratings right, credit profile, financial profile, etc? Could you explain that? In a way what you are saying is that the road and track that these companies were on, these four specifically that you mentioned, even if Mr Mistry is ousted, these companies must remain on the same track, in terms of restructuring, efficiencies, etc.

A: Yes, for instance, our ratings on Tata Motors incorporate the view that there is a certain trajectory for the JLR operations; there are certain plans in terms of the commercial vehicles business and passenger vehicle business in India and ditto for Tata Steel in terms of the Kalinganagar operations that have started earlier this year and the restructuring in Europe. You would have seen that earlier this week, they just announced that they have signed a letter of intent with Liberty House for the potential sale of the speciality steel business.

So, we do expect that that strategy continues and also for Tata Chemicals, in August they announced the sale of the urea business. So those decisions have been incorporated into the ratings and we do not expect any changes. Of course, if there are any changes such that risk appetite for the group is any different then we may need to review.