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Moody’s has upgraded Tata Steel’s rating to stableMoody’s Investors Service has upgraded the corporate family rating of Tata Steel Ltd to Ba1 from Ba2.The rating outlook remains stable. “The upgrade to Ba1 reflects our view that Tata Steel’s better-than-anticipated operating performance this fiscal year and a step-change reduction in gross debt have materially strengthened its credit metrics,” said Moody’s.”We expect the company’s leverage – measured by consolidated debt or EBITDA to decline to 1.5x by March 2022 from 6.5x at March 2020, 3.3x at March 2021 and an estimated 2.1x at June 2021,” said Kaustubh Chaubal, Moody’s Vice President and Senior Credit Officer.”We project the company will continue to generate large and positive free cash flow from operations over the next 12 to 18 months because of supportive commodity prices, steady product spreads amid likely persisting strong steel demand,” said Mr Chaubal.Tata Steel’s financial policies prioritise debt reduction over capital expenditure, supported by the company’s strong operating cash flows. Such credit positive initiatives accelerate debt reduction and better equip the company to tide through industry downturns.The company’s prudent financial strategy and risk management are a key component of Moody’s governance risk assessment framework.Tata Steel made a public commitment to reduce the company’s gross debt by at least one billion dollars every fiscal year before reinvesting surplus free cash flow generation into new initiatives. The company targets net leverage of 2x and EBITDA/interest coverage of 4x, through the cycle.The upgrade to Ba1 reflects Tata Steel’s conservative financial policies, which combined with Moody’s expectations of strong operating performance throughout fiscal 2022, will contribute to further deleveraging and balance sheet strengthening.Moody’s expects the company to reduce gross debt by at least a third – or by around 5.8 billion dollars by March 2022 from March 2020 levels. More importantly, the upgrade reflects the rating agency’s expectation of moderate financial leverage and ample interest coverage for Tata Steel in a normalised steel price environment due to significant debt reduction in 2021.

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