Tata Steel downgraded on weakness of UK unit

MUMBAI, India — Moody’s downgraded the company rating of India’s Tata Steel Ltd on Monday because of weak performance at its U.K. Corus unit — sign of how troublesome Tata’s ambitious overseas acquisitions have become since the global financial crisis hit.

Tata Steel was rated at Ba3 from Ba2, the second downgrade since March. Both ratings are below investment grade. Moody’s also downgraded Tata Steel U.K. to B2 from B1 — both speculative grade ratings — the second downgrade since January.

“Reduced cash flow generation and increased leverage to support Tata Steel U.K. are putting pressure on Tata Steel India’s credit profile,” Ivan Palacios, an analyst for the ratings agency said in a statement.

“However, the company’s ability to provide further equity to the European operation is backed by the strong support from the domestic banking sector,” he added.

The Tata Group has made some of India’s most aggressive overseas acquisitions. In 2007, Tata Steel acquired Corus, Europe’s second-largest steel producer, and the next year, Tata Motors bought the Jaguar and Land Rover brands from Ford Motor Co.

After the acquisition of Corus, Tata Steel became the world’s sixth largest steel maker with an annual production capacity of around 29.9 million tons of crude steel.

But when the global financial crisis hit, those overseas assets quickly turned into liabilities, at least for the short term, for their Indian parent companies.

The acquisitions have been difficult to finance, and both Corus and Jaguar Land Rover have required significant capital infusions from the Tata Group.

In May, Tata Steel renegotiated 3.7 billion pounds ($5.4 billion) in acquisition-related debt. As part of that deal, Tata Steel agreed to inject 425 million pounds ($635.4 million) into its U.K. subsidiary.

That same month, Tata Motors managed, after much difficulty, to complete refinancing of a $3 billion bridge loan it took to pay for the Jaguar Land Rover deal.

Tata Motors executives said in May that the company had spent 78.1 billion rupees ($1.7 billion) to fund the acquisition and was now working to reduce its debt.

Tata Motors is India’s largest commercial vehicle maker and the creator of the ultra-cheap Nano passenger car, set to hit India’s roads in July.