S&P upgrades five Tata group companies

S&P Global Ratings on Thursday upgraded ratings of five companies of the Tata group including Tata Steel, Tata Motors and Jaguar Land Rover (JLR) reflecting its reassessment of the ongoing influence and the potential for 'extraordinary financial support' from the parent, Tata Sons.

Under the revised exercise, S&P Global said ratings on Tata Steel Ltd and its 100 per cent-owned financing subsidiary ABJA Investment Co Pte Ltd have been upgraded to 'BBB-' from 'BB' with stable outlook.

Similarly, Tata Motors Ltd and its wholly-owned arm TML Holdings Pte Ltd have been upgraded to 'BB-' from 'B' ratings with stable outlook.

Also, the ratings of the group's British luxury vehicles maker Jaguar Land Rover Automotive PLC (JLR) has been revised upwards to 'B+' from 'B'.

The outlook is stable, S&P Global Ratings said in a statement.

The upgradation on the Tata Group entities is "to reflect our reassessment of ongoing influence as well as the potential for extraordinary financial support from the parent", Tata Sons, it added.

"The upgrades reflect our view that the credit profiles of the various Tata Group entities are strengthened by their importance to Tata Sons, with potential for financial support, if required," the ratings agency said.

It further said, "we also expect Tata Sons to have a positive influence on the long-term strategy, financial policies and funding access of its group entities. We regard the credit quality of Tata Sons to be strongly investment grade."

S&P said the incorporation of group support into the ratings followed a revision to its approach to treating Tata Sons as a conglomerate rather than as an investment holding company.

"We have observed that Tata Sons and its subsidiaries and associates have become a more cohesive group in recent years," it said.

Citing factors such as Tata Sons' increased ownership in group entities over the last few years and its greater influence on the strategy and financial policies of the group companies, although the Tata Group entities operate independently with professional directors and management, the ratings agency said, "We believe the various Tata Group entities will benefit from extraordinary support, if needed, with their importance to Tata Sons..."

Key Tata Group companies enjoy a legacy status within the Tata Group and account for a sizable share of the group's EBITDA and assets. They are also closely linked to Tata Sons' reputation and risk management, it added.

S&P, however, said the extent of the rating uplift is "constrained by Tata Sons' minority ownership in the rated entities, relatively small share in the cash flow and portfolio value at the Tata Sons level, and the limited operational and financial integration between entities, compared with other conglomerates".

"Further, Tata Sons has demonstrated financial support mainly during periods of financial stress as opposed to regular co-investments or capitalisation to maintain credit strength, as seen in conglomerates with a stronger group linkage," it added.

The absence of ongoing capital support to prevent deterioration in credit profile implies that the final rating on group entities cannot be too detached from their respective stand-alone credit profiles, S&P said, adding "a greater demonstration of ongoing support and operational linkages within the group could lead to a stronger assessment in the future".

Photograph: Danish Siddiqui/Reuters