Moody's and Fitch downgrade Tesco by a notch
Disappointing news just keeps coming for Tesco, with Moody’s downgrading the stricken retailer’s credit rating from Baa2 to Baa3 just hours after the firm had admitted overstating its first half pre-tax profit by £263m.
“We have downgraded Tesco's ratings because of the materially reduced trading profit for the first half of fiscal 2015 that is affected by the rapid structural changes in the UK retail grocery market as well as the ongoing uncertainties related to the investigation by the FCA into Tesco's accounting irregularities,” Moody’s said in a note.
“Even if the FCA concludes its investigation without material negative financial implications, Tesco faces huge operational challenges which continue to put its investment-grade rating at risk.”
In a similar move Fitch Ratings downgraded Tesco from BBB to BBB-, citing negative outlook and challenging operating environment as the main reasons behind the move.
"The downgrade reflects Tesco's continued loss of competitiveness in its core UK operations, with profitability further impacted by the accounting adjustments associated with the group's recognition of commercial income,” Fitch said in a note.
"Fitch expects further pressures on volumes and pricing, coupled with the significant operational leverage inherent in the business, leading to a structural reset of margins in the UK business."
Tesco shares closed down 6.56% to 171.00p on Thursday.