FITCH DOWNGRADES JSW STEEL ON WEAK INTERNATIONAL PRICES
Fitch Ratings has downgraded JSW Steel rating with the negative outlook on concerns over prolonged weak international steel prices and high leverage. The agency also downgraded the company's senior unsecured rating and the rating on its $500 million 4.75 per cent senior unsecured notes due 2019 to 'BB' from 'BB+'.
The downgrade reflects the decline in profitability and rise in leverage during a prolonged period of weak international steel prices, coupled with debt-funded investment in capacity expansion, it said.
Fitch expects the average selling price of steel sold by the company to increase from this financial year with new capacity addition going on stream and government measures to support domestic price.
However, it said there are still risks to selling prices if the Government decides to lift the regulatory protection, and if the company embarks on another phase of debt-funded expansion.
JSW Steel's consolidated Ebitda per unit declined to about Rs. 4,800 a tonne from Rs. 7,800 a tonne in FY-15. The average selling price of the company has fallen by Rs. 8,500 a tonne. The global steel industry is suffering from weak demand and overcapacity, and global capacity utilisation is at a level last seen during the 2008-2009 global financial crisis, it said.
In India, steel demand growth was tepid at 4.7 per cent in the first nine months of this fiscal.
The 29 per cent increase in imports led to government fixing minimum import price between $341 and $752 a tonne on 173 steel products, besides extending safeguard duty till March 2018.
Though steel prices have risen by Rs. 4,000 a tonne since January, it is still lower by about 20 per cent compared to the average selling price in FY-15.
Fitch's forecast assumes that further price hikes will be constrained in the near term, given the intense competition among domestic producers to support utilisation rates.
However, JSW Steel’s ability to de-leverage its balance sheet would derail, if the government removes the protection ahead of any significant improvement in the global steel prices.