MUMBAI: Shares of India's Tata Steel, one of the world's leading steel producers, fell nearly three percent on Tuesday, a day after it announced a $1.6 billion asset writedown on its European unit.
Tata Steel said the writedown for the financial year that ended March 31, was due to "weak economic and market conditions" in Europe, that it forecast would continue "over the near- and medium-term".
The writedown "reflects that investments have not delivered as per management's expectation", said Rakesh Valecha, senior director at India Ratings, a Fitch group firm.
India's Tata Steel became one of the leading global steel producers after it acquired Anglo-Dutch rival Corus for $13.7 billion in 2007.
It has been struggling to improve its European unit's performance in the face of the eurozone debt crisis.
Europe now accounts for about two-thirds of sales and production for Tata Steel, which has an annual capacity of 28 million tonnes.
The writedown could hit the steelmaker's future financing ability and trigger a ratings downgrade, analysts said.
Tata Steel slid as much as 2.83 percent to a low of 296.7 rupees before clawing back most of its losses to close down half a percent at 303.9 rupees.
Ratings agency Moody's said Tata Steel's announcement highlighted problems in the European steel market and continued poor performances at Tata Steel UK Holdings (TSUKH).
"Indeed, failure to stem the losses at TSUKH could lead to sustained rating pressures that could ultimately result in a downgrade," the ratings agency said.
TSUKH is the holding firm of its European operations which comprise the Corus group.
Analysts say the global steel industry will continue to face challenges for another one to two years due to the fall in demand in Europe and slowing growth in China.
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