Crisil downgrades SAIL

quot;The downgrade reflects the deterioration in the financial profile of SAIL as a result of sustained downturn in the steel industry and large debt funded capital expenditure programmes,quot; Crisil said. Any improvement in SAIL8217;s long-term-credit rating would depend on the nature and the speed of the steel major8217;s restructuring programme.

According to the agency, the large cash lossesover the last 15 months, continued support to loss-making subsidiaries and delays in government approval for financial and business restructuring proposals have led to significant increase in leveraging. quot;With continuing cash losses, external support would be necessary for meeting the large debt obligations,quot; the agency release said.

The rating factors explicit support from the government of India in the form of guarantees to SAIL8217;s fresh borrowing programmes in order to meet its debt obligations. quot;The rating takes into account SAIL8217;s inherent strengths arising out of large multi-unit operations, dominant share in the domestic steel industry, its continuously improving operating efficiency and a possible upswing in steel prices,quot; Crisil said.

In the first quarter of 1999-2000, the public sector steel monolith had declared a net loss of Rs 610 crore on sales of Rs 3,376 crore, nearly 100 per cent up from Rs 311 crore on a turnover of Rs 3,196 crore posted in the first quarter of the previous fiscal. With afurther drop in steel prices, there is very little chance of SAIL posting better operational results in the second quarter. Nevertheless, if the financial restructuring package is approved and sale of power plants and other fertiliser units completed, the interest charges would be reduced by more than half. That may ward off the steep downward slide in earnings of the company.