Rating agency Standard and Poor’s (S&P) said Tata Steel can acquire Neelachal Ispat Nigam Ltd (NINL) without sacrificing rating headroom due to deleveraging over the past 18 months and strong cash flow from high steel prices.
Tata Steel's (BBB-/Stable/--) debt is expected to continue to decline over the next two years, despite the Rs 12,100 crore deployed for the acquisition of state run NINL. However, the pace of deleveraging will be slow in the year ending March 2023.
The company's adjusted debt is estimated to decline by about 5 per cent in FY23 versus a nearly 20 per cent decline expected earlier due to the acquisition, all else remaining the same. Its ratio of funds-from-operations to debt is likely to decline to about 40 per cent from an expected 45-55 per cent range earlier. This is well above the 25 per cent downgrade rating trigger.
The rating agency said it has assumed average steel prices in FY23 to be about 10 per cent lower year-on-year. This may result in a 20-25 per cent year-on-year decline in EBITDA/tonne at its key Indian operations. NINL is unlikely to materially affect FY23 earnings.