Moody's to review JSW Steel rating for downgrade

Moody's Investors Service has put the corporate rating of JSW Steel under review for downgrade. The ‘stable’ ratings outlook on the company is also under review.

Moody's expects to conclude the review within 90 days.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil price and asset price declines are creating a severe and extensive credit shock across the world.

The combined credit effects of these developments are unprecedented. The steel sector has been one of the most significantly affected by the shock given its sensitivity to consumer demand and sentiment.

The weaknesses in JSW’s credit profile, including its exposure to steel demand for manufacturing and volatile material costs, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and it remains vulnerable to the outbreak continuing to spread, said Moody’s.

The action reflects the impact on JSW of the breadth and severity of the shock and the broad deterioration in credit quality it has triggered, it said.

“The review for downgrade reflects our expectation that weak steel demand will strain JSW's credit profile, at least through the fiscal year ending March 2021,” says Kaustubh Chaubal, Vice-President, Moody's.

“In fact, there is a distinct possibility JSW will remain in breach of our downgrade triggers for its Ba2 CFR.”

Even before the coronavirus outbreak, sluggish economic growth, weak demand and narrow product spreads had led to a deterioration in JSW's credit profile.

“The review reflects our concern that JSW will face significant challenges due to the coronavirus-led economic downturn, with declining sales, weak earnings and free cash flow generation because of tepid demand from automakers, manufacturing and other steel consuming industries,” adds Chaubal.

Moody's review for downgrade will focus on the outbreak's impact on JSW's operations in light of increasing restrictions on people's movement, the impact of the outbreak on demand, steel prices and product spreads, an analysis of cash burn rate and liquidity, as well as management's strategy for coping with prolonged, low and volatile commodity prices, the impact of potential counter measures such as capex deferment and any government measures to support the steelmaker's operations.