Tesco eyes central and eastern Europe exit following Korea sale

7th Sep 2015 17:32

(ShareCast News) - Tesco has discussed extending its asset sale to its central and eastern European businesses as it looks to clean up its balance sheet, reports said on late Monday afternoon.The UK supermarket giant, which has announced the sale of its Homeplus Korean unit for over £4bn, had begun discussions about potential European disposals with advisers, according to multiple sources cited by Bloomberg.Tesco's central and eastern European operations have been estimated by analysts at nearly £2bn and contribute almost £6.5bn of sales, though these have fallen for three straight years under pressure from discount retailers.While this means Tesco would be pleased to offload this arm, a trade buyer would not be so enthusiastic.The agreed sale of Homeplus on Monday will allow the FTSE 100 group to reduce its total indebtedness by over £4.2bn from net cash proceeds and associated reductions in capitalized lease and other commitments, but this deal if it completes as expected in the fourth quarter of the year is only roughly a fifth of group liabilities.In a note on Monday, credit rating agency Standard and Poor's was encouraged but continued to expect more."We consider the sale of Homeplus as a demonstration of management's commitment to reducing the group's debt and strengthening its balance sheet," S&P wrote. "The closures of nonperforming stores and the UK defined benefit pension scheme, together with other financial policy measures, including dividend cancellation, cuts to future capital expenditure, and the potential disposal of the Dunnhumby business, should enable the group to improve its Standard & Poor's-adjusted debt-to-EBITDA ratio to less than five times."The agency suggested it would not be likely to improve the company's credit rating until the turnaround of the UK operations and the improvement of operating profits appeared to be sustainable.