Tata Motors’ Ratings Face Downgrade Risk Due To Coronavirus, Moody’s Says

Moody's Investors Service has placed under review its ratings on Tata Motors Ltd. for a possible downgrade.

The review, which will be completed over the next 90 days, is on the Ba3 corporate family rating and Ba3 senior unsecured debt rating, the ratings agency said in a statement. The outlook on ratings under review has been revised from negative.

According to Moody’s, the following factors can play a role in possible downgrade of Tata Motors’ ratings:

• Rapid and widening spread of the coronavirus outbreak
• Deteriorating global economic outlook
• Falling oil prices and asset price declines

The combined credit effects of these developments are unprecedented, according to the ratings agency’s statement. The automotive sector has been one of the sectors most affected by the shocks given its sensitivity to consumer demand and sentiment.

Specifically, the agency said, the weaknesses in Tata Motors’ credit profile, including its exposure to final consumer demand for automobiles, have left it vulnerable to shifts in market sentiment, leaving it more vulnerable.

Moody's regards coronavirus outbreak as a social risk under its Environmental, Social, and Governance framework, given the substantial implications for public health and safety. Today's action reflects the impact on the companies of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered, it said.

Accelerating incidence of coronavirus infection across the U.S. and Europe, the Middle East and Africa, could lead to even more extended production shutdowns and a much delayed demand recovery for Tata Motors’ wholly-owned subsidiary, Jaguar Land Rover Plc.

JLR's British plants are mostly closed, as are units along the broader auto supply chain. This should enable field inventories of unsold units to be somewhat restrained but also lead to potential disruption even after new production starts, unless original equipment manufacturers and the supply chain cooperate carefully.

For now, Moody's said, “We assume a reasonable pace of demand recovery in the third quarter, however the risk to the downside is considerable and further downside scenarios given the uncertainty on the severity and duration of the pandemic.”

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For China and India, Moody's expects auto sales to steadily improve from first quarter. Nevertheless, these markets also face downside risks in terms of the pace and magnitude of the demand recovery.