International credit rating agency Standard & Poor's Ratings (S&P) has announced that a potential sale by Indian steelmaker Tata Steel of its European long steel products business and associated distribution activities is credit positive for the company and its UK subsidiary Tata Steel UK Holdings Ltd. The rating agency expects Tata Steel to use the proceeds from the proposed divestment to repay the debts of its UK subsidiary.
According to S&P, the proposed sale could help improve profitability and enhance focus on the steel strip and specialty steel businesses, benefiting Tata Steel's UK operations and in turn Tata Steel. Historically, the long products business has been a drag on Tata Steel's profitability but it has been improving. However, the rating agency stated that any long-term sustainable improvement in this business would need significant capital investment and management focus. The long products segment in Europe has been affected by a drop in construction activity with recovery being uncertain.
S&P expects Tata Steel's operating performance to improve over the next 12 months because of higher steel output in India, lower capital expenditure, and improving profitability at its Europe operations.
