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Global Credit Research - 16 Dec 2010
Singapore, December 16, 2010 -- Moody's Investors Service today downgraded to Ba2 from Ba1 the corporate
family rating of Tata Chemicals Ltd ("TCL"). The outlook on the
rating is stable.
"The performance of the group as the global economy recovers from the
2008/09 downturn has been at the lower end of our expectations and given
rising input prices, we expect financial performance to remain constrained
in the medium term", says Alan Greene, a Moody's VP/Senior
Prior to today's rating action, the outlook on TCL's
previous Ba1 rating was negative, reflecting these challenges.
TCL is increasing capex in order to replace existing plants and to invest
in smaller fertilizer and salt plants. The company is also contemplating
an USD800 million expansion of the Babrala urea plant, with the
investment decision hinging on the availability of cheap gas.
"TCL's capex plan will likely lead to negative free cash flow
generation over the next 2 years", Greene says, adding
"the company is reliant on continued upward momentum in the operating
environment to maintain or improve its credit metrics".
"The Ba2 rating should accommodate TCL's growth and funding
strategies, and provide sufficient flexibility to manage the inevitable
volatility in the operating environment", Greene adds.
TCL's credit profile continues to reflect strong positions in its domestic
and international markets for soda ash, competitive cost structure,
and solid operating record. It also holds a leading position in
India's regulated fertilizer sector, where moves towards market-based
pricing have reduced the predictability of profits in the near-term.
Upward pressure on the rating is unlikely over the next 12-18 months.
However, the rating could be upgraded if consistent improvement
in performance is observed across its businesses, including consistent
discipline in global soda ash markets and continued support for the Indian
fertilizer operations from the regulatory framework. Financial
metrics that Moody's would consider for an upgrade include Adjusted
Debt/EBITDA ratio of 2.5-3.0x and Adjusted EBITDA/Interest
of 4.5-5.0x on a consistent basis.
On the other hand, the ratings could be downgraded if the outlook
for the key soda ash and fertilizer activities deteriorates such that
TCL's profitability declines. Credit measures that Moody's would
consider for a downgrade include Adjusted Debt/EBITDA exceeding 4.0x-4.5x
and EBITDA/interest coverage falling and then remaining below 3.0-3.5x.
Downward pressure on the rating could also develop if the company experiences
stress in its financial covenants.
The last rating action with regard to TCL was taken on April 7,
2009, when Moody's lowered the rating to Ba1/ Negative from Baa3/
The principal methodology used in this rating was Global Chemical Industry
published in December 2009.
Tata Chemicals Ltd, based in Mumbai, India, is the flagship
chemical company of the Tata Group. It is currently the world's
second largest producer of soda ash and a domestic leader for branded
salt, fertilizer and urea products.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
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Senior Vice President
Corporate Finance Group
Moody's Investors Service Pty. Ltd.
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Moody's Investors Service Singapore Pte. Ltd.
Moody's lowers Tata Chemical's rating to Ba2; Outlook stable
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