Moody's Investors Service has today placed under review for downgrade JSW Steel Limited's Ba2 corporate family rating CFR and the Ba2 senior unsecured rating. The ratings outlook has been revised to ratings under review from stable. It said “The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The steel sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in JSW's credit profile, including its exposure to steel demand for manufacturing and volatile material costs, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions, and it remains vulnerable to the outbreak continuing to spread. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on JSW of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.”Moody's review for downgrade will focus on:
(1) The outbreak's impact on JSW's operations in light of increasing restrictions on people's movement and the potential for a further shutdown of operations to ensure employee safety
(2) The impact of the outbreak on demand, steel prices and product spreads
(3) An analysis of JSW's asset base, cost structure, likely cash burn rate and liquidity, as well as management's strategy for coping with prolonged, low and volatile commodity prices
(4) The impact of potential countermeasures such as capex deferment as well as any government measures to support the steelmaker's operations and consumers in its main markets
(5) Its resilience in various stress testing scenarios, especially with respect to liquidity.
Moody's Vice President and Senior Credit Officer Kaustubh Chaubal said "The review for downgrade reflects our expectation that weak steel demand will strain JSW's credit profile, at least through the fiscal year ending March 2021. In fact, there is a distinct possibility JSW will remain in breach of our downgrade triggers for its Ba2 CFR. The review reflects our concern that JSW will face significant challenges due to the coronavirus-led economic downturn, with declining sales, weak earnings and free cash flow generation because of tepid demand from automakers, manufacturing and other steel consuming industries.”
In March, JSW announced that following the nationwide lockdown initiated by the Indian government and the various advisories from local and state governments, production at most of its plants has either scaled down or been suspended.
Source: STEELGURU
|
