According to analysts in India Ratings, Tata Steel’s investment in its European unit has not delivered returns according to the management’s expectation. This prompted the firm to writedown $1.6 billion asset in its European unit, Rakesh Valecha, Senior Director at India Ratings feels.
Tata Steel attributed the writedown to “weak economic and market conditions” in Europe and it expects this situation to continue “over the near- and medium-term”.
Some analysts feel that the writedown could hit the steelmaker’s future financing ability and trigger a ratings downgrade.
Ratings agency Moody’s said Tata Steel’s announcement highlighted problems in the European steel market and continued poor performances at Tata Steel UK Holdings (TSUKH).
India’s Tata Steel became one of the leading global steel producers after it acquired Anglo-Dutch rival Corus for $13.7 billion in 2007.
About two-thirds of sales and production of Tata Steel is contributed by its European unit. Tata Steel has an annual capacity of 28 million tonne.
The firm could face sustained rating pressures because of its failure to stem the losses at TSUKH and this could result in a downgrade, some ratings agency said. TSUKH is the holding firm of its European operations which comprise the Corus group.
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