Fitch Ratings Revises JSW Steel’s Outlook To ‘Negative’ From ‘Stable’
Fitch Ratings has revised its outlook on JSW Steel Ltd. from ‘Stable’ to ‘Negative’ while affirming the steelmaker’s long-term issuer default rating at ‘BB’ on the back of its high leverage levels.
“JSW Steel’s deleveraging and improvement in its free cash flow profile can be delayed by an increase in its planned capex or inability to stabilise and improve performance at acquired assets,” the ratings agency said in a statement.
The steelmaker could face negative rating action if its debt-to-Ebitda ratio crosses the threshold of four times for the year ending March 2020, Fitch Ratings said, adding that it estimated the metric at five times on account of challenges in the Indian market.
Fitch Ratings also said that it would consolidate Bhushan Power & Steel Ltd.’s debt and operating profit to calculate JSW Steel’s leverage metrics, even in the absence of any corporate guarantee. That, according to the ratings agency, was on the back of Bhushan Power’s “high strategic importance” to JSW Steel.
Negative Free Cash Flows
Fitch Ratings expects JSW Steel’s free cash flow to return to positive territory only beyond FY22 in the absence of rebound in capital expenditure.
The domestic steelmaker had guided for total capex of around Rs 32,000 crore in India in FY20 and FY21. While JSW Steel has cut its capex plans for FY20 by around Rs 5,000 crore by deferring certain projects, Fitch Ratings expects spending to pick up in FY21.
Fitch Ratings, however, expects JSW Steel’s operational performance to improve.
The rating agency said the company’s Ebitda would rise in FY21 led by falling raw material costs and stable steel prices. Demand, it said, would pick up driven by government spending on infrastructure and overall economic growth.
The operating profit of JSW Steel’s India operations, fell by nearly 40 percent over the previous year in the first nine months of this fiscal, dragged by lower steel prices and margin.
Fitch Ratings has assigned a similar BB rating to Tata Steel Ltd.