Fitch affirms Tata Steel's 'BB' rating with stable outlook

Fitch Ratings has affirmed Tata Steel Limited's (TSL) long-term issuer default rating (IDR) at 'BB', with stable outlook, after the European Commission rejected a proposed joint venture (JV) with thyssenkrupp AG on antitrust concerns.

"The affirmation of TSL's ratings follows confirmation by the European Commission that it has rejected a proposed joint venture (JV) with thyssenkrupp AG (BB+/Rating Watch Negative) on antitrust concerns," Fitch said in a report.

On June 11, the EU antitrust regulators blocked a bid by a German multinational conglomerate Thyssenkrupp and Tata Steel to form a landmark joint venture.

The global rating agency has also affirmed Tata Steel UK Holdings Limited's (TSUKH) long-term IDR rating at 'B' with the stable outlook.

"All ratings have been removed from Rating Watch Evolving (RWE), on which they were placed on 1 April 2016," the agency said.

"Tata Steel's ratings are also supported by its high profitability in India, where it benefits from significant captive raw-material production, and its market position as the country's largest steelmaker by sales volume," Fitch said.

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The rating firm said earlier an upgrade was probable if TSL had successfully formed the JV, which would have reduced its exposure to structural weaknesses in Europe and improved its business profile, and total adjusted debt-to-EBITDAR leverage was forecast to remain below 4x.

"Conversely, Fitch could have downgraded the rating if the JV were unsuccessful and leverage remained above 4x," it added.

Tata Steel had proposed 50:50 JV with thyssenkrupp to establish the second-largest European flat-steel producer. The JV would have allowed TSL to cut its exposure to its structural weaknesses of high costs and weak demand growth in Europe and focus on its Indian operations. TSL had been pursuing several options for portfolio restructuring in Europe following the announcement of its plan on March 29, 2016 and had sold its unprofitable long-product business in 2016 before signing the definitive agreement for the proposed JV in June 2018.

Edited by Chitranjan Kumar

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