Fitch Ratings on Friday withdrew its rating for state-run Steel Authority of India Ltd (SAIL) and will no longer provide ratings or analytical coverage for the company.
Usually, rating agencies withdraw or suspend ratings either due to insufficient information availability, the likelihood of non-availability of information in the future or commercial reasons.
“Fitch has chosen to withdraw the rating for commercial reasons,” the rating agency said in a statement.
Meanwhile, it affirmed SAIL’s long-term foreign-currency issuer default rating (IDR) at BB, which is a negative rating. Earlier, on 1 April Fitch had downgraded company’s ratings to BB from BBB-. IDRs are based on a company’s relative vulnerability to default on financial obligations.
The downgrade by Fitch was due to the company’s deteriorating financial performance amid structural slowdown in demand and weakening prices. SAIL has suffered a series of losses during the first three quarters of the last financial year. The company’s net loss during the third quarter ending 31 December 2015 was Rs1,528 crore.
According to the rating agency, the negative outlook points to the risk of further fall in steel prices which may prove to be a hurdle for SAIL to improve its profitability. In an earlier report, Fitch had also said that it expects the company’s tepid performance to continue for another 18 months and to improve by the end of the fiscal year 2017-18.
The domestic steel industry is under pressure due to cheap steel imports from China and is finding it difficult to pay back loans. Around Rs4 trillion worth of gross non-performing assets are sitting on the loan books of Indian banks, as per Reserve Bank of India data.
SAIL, along with other steelmaking companies, has also been filing applications with the government requesting safeguard duty against cheap imports.
Queries emailed to a SAIL spokesperson were not answered immediately.
Experts, however, doubt that discontinuation of ratings is linked to commercial reasons.
“Steel sector all together is going through a very uncertain phase. So, it’s very difficult for rating agencies to continue with the rating process,” said V.S. Jain, former chairman of SAIL.
VCCircle on May 4 reported that SAIL has introduced a voluntary retirement scheme starting 1 May for its employees as a part of its strategy to reduce costs and improve productivity.
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