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Bond Market News

Tata Steel and JSW Upgraded to BB+ and BB

Tata Steel was upgraded to BB+ from BB by Fitch, now just one notch below an Investment Grade (IG) rating. The upgrade comes on the back of a “significant improvement” in its financial profile thanks to “record EBTIDA and significant debt repayment”. The company has benefitted from high steel prices, while sales volume remained largely unaffected. Fitch estimate Tata Steel’s leverage (total debt/EBITDA) declined to below 1.5x in FY 2022, from 3.4x. The steelmaker plans to have a net debt/EBITDA leverage, based of 2x or lower. Besides, its European operations have turned around with working capital rationalization and capex, staff cuts and “optimization of product mix to improve profitability”. Also its high group support (where Tata Group owns 34%) adds to the upgrade.

Tata Steel’s 5.45% 2028s were up 0.6 points to 97.82, yielding 5.9%.

JSW Steel was upgraded to BB from BB- by Fitch after it expects a “significant reduction” in leverage, thanks to a jump in EBITDA in FY 2022. Gross debt/EBITDA is estimated to have declined to below 2.5x in FY 2022, from 4.4x in FY 2021 due to a doubling of EBITDA. Fitch expects total debt/EBITDA to stay below 3x over the next three years. The rating agency expects that its sales volumes rose over 10% during the year and is expected to rise another 10% in FY 2023. Its US assets have seen a turnaround after equipment upgrades and vertically integrated facilities. On the cost-front, JSW’s Indian operations benefit from high yields and low labor costs. The steelmaker is expected to increase capex in FY 2023 for adding capacity in India, invest in mining equipment and facilities in Odisha and a phase 2 modernization of its Baytown mill.

JSW Steel’s 5.05% 2032s were stable at 82.5, yielding 7.6%.

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