Tesco's credit rating downgraded to 'junk' by S&P

14th Jan 2015 15:49

Standard & Poor's has followed in the footsteps of fellow ratings agency Moody's as it downgraded its rating on Tesco's debt to the equivalent of 'junk'.S&P Ratings Services said on Wednesday that it had lowered its long-term corporate credit rating on the UK supermarket chain from 'BBB-' to 'BB+', below investment grade."The downgrade reflects our view that, given the structural changes and competitive pressures that Tesco is facing in the UK market, the credit supportive financial policy measures announced by Tesco's management are unlikely to sufficiently improve the group's financial risk profile to maintain an investment-grade rating," S&P said in a statement.Moody's last week lowered its rating on Tesco by one notch to 'Ba1 stable', saying that measures to turn around the business will take time to implement.S&P, meanwhile, said the scrapping of Tesco's dividend, planned cuts to capital expenditure and the potential disposal of its data-analysts unit Dunnhumby should improve the retailer's cash position over the next financial year.However, the agency expects market conditions to stay "highly competitive" for the UK market, which accounts for two-thirds of Tesco's sales and profits."We anticipate that increased competitive and price pressures in the UK from both traditional and discount retailers could suppress any benefits from various management strategies oriented toward improving trading performance."Accordingly, we anticipate that Tesco's profitability will continue to remain under pressure as market competition in the UK remains high."