Tata Steel’s SPV floated for the acquisition of Bhushan Steel, Bamnipal Steel’s short term borrowings have been assigned ‘Provisional IND A1+’ rating by ratings agency India Ratings based on the probability that the SPV will receive financial support from parent Tata Steel, if needed.
“Ind-Ra has taken comfort form the “strategic importance of the asset, the majority stake ownership, as well as the likely operational and financial synergies from assets that will be held by the subsidiary,” a note by Ind-Ra said.
All the borrowings that are raised at Bamnipal will be backed by a letter of comfort from TSL.
Instruments with the rating A1+ are considered to have very strong degree of safety regarding timely payment of financial obligations and carry lowest credit risk.
Bamnipal, a 100% owned subisidiary by Tata Steel has proposed short term borrowings to the tune of Rs 16,500 crore with a maturity date of this fiscal year and is likely to play an important role in Tata Steel’s plans of expanding its market share in India. It’s current domestic capacity stands at 12.5 MTPA.
The SPV enjoys strong operational linkages with its parent company as Tata Steel’s top management form part of Bamnipal’s board of directors.
“Ind-Ra assumes the asset will enable a more efficient use of the captive raw material sources subject to regulatory approvals, improve the sourcing efficiencies and expand the product,” the note read.
Legal linkages, on the other hand are moderate, which means Tata Steel’s letter of comfort does not imply a legally binding obligation to service Bamnipal’s debt.
Also, deterioration in Tata Steel’s credit profile or any weakening of linkages with it could lead to a negative rating action, the note said.