Indian Steel Makers Drop After Arcelormittal Downgrade

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Shares in steel manufacturers fell sharply Friday after rating agency Standard & Poor's cut ArcelorMittal’ s long-term debt to junk status. ArcelorMittal is the world's largest steel maker.

S&P attributed uncertainty about the company's debt reduction plans and a weak sector outlook for its rating downgrade. ArcelorMittal’ s total debt stood at $61.40 billion as of end-FY’11. A downgrade in ratings increases the cost of borrowings for a company.

An ArcelorMittal officer had earlier told an investor conference that the cost of a one notch downgrade was $100 million of higher interest expense

Shares in Tata Steel, the largest private-sector steel company in India, were down 2.8 per cent. The company had a consolidated net debt of $20.23 billion at the end of the March quarter.


State-run Steel Authority of India (SAIL) was down 2.6 per cent. Other big private sector steel manufacturers like JSW Steel and Jindal Steel and Power also traded with over 2 per cent losses.

"These are high beta stocks that tend to decline more... They also have a high degree of financial leverages and in the current environment, leverage is something that is to be avoided, particularly in foreign currencies," Manishi Raychaudhri, strategist and head of research at BNP Paribas Securities told NDTV Profit.

Investors sold shares in these steel makers amid falling global demand. The steel industry, often seen as a gauge for the world's economy, has been suffering on account of falling demand in Europe due to the euro zone debt crisis and a slowdown in China.

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