By Siddharth Rego

India Ratings and Research (Ind-Ra) has taken the following rating actions on T S Global Procurement Company Pte Ltd’s (TSGP) bank facilities:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Revolving syndicated bank facilities*

-

-

-

INR7,868.74 (USD105) ^

IND AA-/Stable

Affirmed and Reassigned; Outlook Revised to Stable from Negative

Proposed revolving syndicated bank facilities*^$

-

-

-

INR31,474.97

(USD420) ^

 

IND AA-/Stable

Assigned

 

* The credit facilities are availed/to be availed from a consortium of overseas banks, with The Hongkong and Shanghai Banking Corporation Limited (HSBC) acting as the agent for the consortium.

$The proposed facilities have been assigned a final rating as per Ind-Ra’s updated policy.


The ratings are compliant to the national credit rating symbols and definitions prescribed by Securities and Exchange Board of India. Furthermore, please refer to the Reserve Bank of India’s latest master circular on Prudential Guidelines on Capital Adequacy on Risk weights of Claims on Non-resident Corporates.

^ Reserve Bank of India Reference Rate dated 22 April 2021: USD 1= INR74.9404


Analytical Approach:  Ind-Ra has applied its top-down rating approach using the Parent Subsidiary Linkage criteria to arrive at the ratings. The ratings were previously based on the letter of comfort extended by TSGP's parent  Tata Steel Limited (TSL; IND AA/Stable) towards the company’s bank borrowings. The change in the rating approach reflects a moderate improvement in TSGP's strategic importance with European operations continuing with TSL after the fall-off of discussion with SSAB AB. TSGP plays a key role in procuring key raw material and working capital funding for TSL’s European operations. The Outlook revision reflects a similar rating action on TSGP’s parent entity TSL. TSL’s credit profile improved in FY21, due to a substantial improvement in its operational and financial performance on the back of robust demand from key end-user segments, including construction/infrastructure, automobiles and white goods.

KEY RATING DRIVERS

Strong Strategic and Operational Linkages: The ratings continue to take cognisance of the strong operational and strategic linkages between TSGP and TSL. TSL’s chief financial officer is on the board of TSGP. Furthermore, TSGP’s board consists of senior management from the Tata Steel group. The management of TSGP and its parent entities  TSL, Tata Steel Holdings Pte Ltd and TS Global Holdings Pte Ltd. work closely with TSL's treasury team to develop strategies for fund raising and inter-company cash support to meet cash flow mismatches. TSGP centrally procures all imported raw material for TSL and its subsidiaries. TSL sources its entire iron ore, thermal coal and coking coal requirements for its European operations and its coking coal requirement for Indian operations from TSGP. With TSL’s plans to hive off its European operations being deferred due to the abandonment of the joint venture with Thyssenkrupp AG and the possibility of sale of the TSL's Dutch operations to SSAB AB ceasing, TSGP continues to be strategically and operationally relevant to TSL.

TSL infuses funds in TSGP through group entities as and when required, establishing its tangible support. TSGP has multiple banking relationships and is part of the cash pool with other companies under TSL based out of the regional treasury centre in Singapore. In addition, it undertakes the organisation of shipping logistics and the hedging of forex and carbon credit price exposure, as part of activities associated with or complementary to, its core activities.

TSL has extended a letter of comfort towards TSGP's bank borrowings. However, the letter of comfort does not and is not intended to impose any contractual or legal obligation on TSL and is not a guarantee or indemnity and is given solely for comfort purposes. 

Standalone Credit Profile to Remain Weak: In FY20, TSGP earned a revenue of USD4,165.4 million (FY19: 4,359.5 million; FY18: USD3,886 million) with an EBITDA of USD83 million (FY19: USD70 million (USD61.45 million). Its EBITDA margins were stable but low at 1.6% over FY16-FY20 since the main objective of TSGP is to source raw materials and provide liquidity support to group entities. The company, therefore, maintains minimum margins on an arm’s length basis. Accordingly, its gross interest cover remained below 1x in FY21 too, after being under it over FY16-FY20, while its net interest cover improved to 1.59x (FY19: 1.42x; FY18: 2.18x). Ind-Ra expects the net leverage to remain high over the near term since TSGP is the entity that funds TSL’s European operations and secures raw materials for the entire Tata Steel group (FY20: 43.73x; FY19: 46.8x; FY18: 55.2x).

At FYE20, the company’s debt consisted of borrowings from its holding company/group companies of USD2,549.2 million (FY19: USD3,272.89 million) and short-term bank loans of USD450.245 million (FY19: nil). Ind-Ra expects the company to meet its debt servicing obligations on time, in view of the cash pooling arrangement that allows it to draw upon surplus cash available with other Tata Steel group entities. The agency believes distress support, if required, will be potentially available from TSL. 


RATING SENSITIVITIES

Positive: Any upgrade in TSL’s rating or the strengthening of linkages between TSL and TSGP could result in an upgrade of TSGP’s ratings. 

 

Negative: Any downgrade in TSL’s rating or a weakening of the linkages between TSL and TSGP could result in a downgrade of TSGP’s rating.


COMPANY PROFILE

TSGP’s principal activity is to procure raw materials and intermediate products relevant to the operations of the Tata Steel group. The other key role played by this company is facilitating the functioning of Tata Steel’s European operations through extended credit on the raw materials supplied, which is funded from intercompany loans from other Tata Steel group entities.

FINANCIAL SUMMARY

 

Particulars

FY20

FY19

Revenue (USD million)

4,165.28

4,359.55

EBITDA  (USD million)

68.65

69.94

EBITDA margin (%)

1.65

1.6

Gross Interest coverage (x)

0.35

0.39

Net Interest coverage (x)

1.59

1.40

Net adjusted leverage (x)

43.7

46.8

Source: TSGP’s annual reports

 

 



RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

17 April 2020

12 December 2019

19 October 2018

 

Revolving syndicated bank facilities

Long-term

INR39,343.71(USD525)

IND AA-/Stable

IND AA-(CE)/Negative

IND AA-(CE)/Stable

IND AA-(SO)/Stable

 



COMPLEXITY LEVEL OF INSTRUMENTS

Instrument type

Complexity Indicator

Revolving syndicated bank facilities

Low

 

For details on the complexity level of the instrument, please visit https://www.indiaratings.co.in/complexity-indicators.

 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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For more information, visit www.indiaratings.co.in.

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Analyst Names

  • Primary Analyst

    Siddharth Rego

    Analyst
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40356115

    Media Relation

    Ankur Dahiya

    Manager – Corporate Communication
    +91 22 40356121