International credit ratings agency Standard & Poor's Ratings Services has announced that it has raised its long-term corporate credit rating for Tata Steel UK Holdings Ltd. to 'BB-' from 'B+'. The outlook is negative.
S&P said that the upgrade reflects the agency's view of the company as a "highly strategic" subsidiary of the Indian steel giant Tata Steel. It believes that Tata Steel UK will continue to receive strong support from its parent. Tata Steel continues to provide significant financial support to the subsidiary.
According to S&P, Tata Steel UK's weak operating efficiency and competitive advantage stem from the company's lack of raw material integration and its exposure to volatility in prices, given the high proportion of spot contracts. The higher cost of production in UK plants and low capacity utilization in Europe underpin the company's below-average profitability compared with industry peers.
S&P said that it would lower the rating on the company if it lowers the rating on Tata Steel or if Tata Steel shows signs of reducing support to its subsidiary although this seems unlikely.
