In a recent development, Fitch Ratings has announced a notable upgrade in the credit ratings of Tata Steel Ltd (TSL), a prominent player in the domestic steel industry. Tata Steel’s ratings have been elevated to ‘BBB-‘ with a stable outlook, showcasing a positive trajectory for its financial standing.
This positive shift extends to the USD 1 billion notes issued by Tata Steel subsidiary ABJA Investment, signifying a robust performance across the board, as stated by the rating agency.
The statement from Fitch Ratings reads, “Fitch Ratings has elevated the India-based Tata Steel Limited’s (TSL) Issuer Default Rating (IDR) to ‘BBB-‘, up from ‘BB+’. The Outlook remains Stable. Additionally, we have upgraded the rating on the USD 1 billion notes, maturing in July 2024, issued by TSL’s subsidiary, ABJA Investment Co. Pte. Ltd., and backed by TSL, to ‘BBB-‘, up from ‘BB+’.”
This encouraging upgrade is a result of the revision in Tata Steel’s stand-alone credit profile (SCP), which has shifted from ‘bb’ to ‘bb+’, reflecting a reduction in uncertainty and financial risk associated with its UK operations.
In a strategic move, Tata Steel plans to replace blast furnaces in the UK with more efficient and eco-friendly electric arc furnaces (EAF) for steel production. This transition is anticipated to significantly enhance the cost competitiveness of the UK operations.
Currently, the UK assets pose a challenge in terms of cost efficiency, reporting an EBITDA loss of approximately GBP 130 million in the financial year ending March 2023 (FY23).
TSL’s ambitious plan to implement a 3 million tonnes per annum (mtpa) EAF-based steelmaking capacity at Port Talbot, UK, over the next three to four years is expected to transform the UK business into a profitable entity, even in the face of industry downturns. This shift is poised to uplift TSL’s overall financial performance.
Remarkably, Tata Steel’s Indian operations source nearly 100 percent of their iron ore and 22 percent of coal requirements internally, from the company’s mines. The plants located in Kalinganagar and Jamshedpur stand out as some of the most cost-effective assets on a global scale.
This robust cost base in India positions Tata Steel as a formidable player in the steel industry, providing a distinct competitive edge, especially amidst the fluctuations in steel prices.
Looking ahead, Fitch Ratings anticipates a rise of approximately 30 percent in TSL’s average annual capital expenditure for FY24-FY26 compared to the FY23 level of INR 141 billion (FY22: INR 105 billion). This investment will predominantly be directed towards the 5 MTPA capacity expansion at Kalinganagar, slated for commissioning by early FY25.
Furthermore, Fitch foresees Tata Steel’s strategic focus on capacity growth in India from FY25 onwards, in tandem with the planned investments in the UK, as instrumental in achieving the company’s ambitious target of around 40mtpa of capacity by 2030.
About Tata Steel:
Tata Steel Limited, a renowned multinational steel producer, operates from its base in Jamshedpur, Jharkhand, and has its headquarters situated in Mumbai, Maharashtra. The company holds a significant position within the Tata Group, a prominent conglomerate with diverse business interests.
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