Tesco credit rating under threat

Tesco was dealt a blow yesterday after ratings agency Standard & Poor's said it was considering cutting its credit rating and suggested that the retailer sell off businesses to cut its debt. S&P did not alter its "A-/A-2" rating – a grade that denotes an "excellent" business risk profile – but changed its outlook from "stable" to "negative" due to concerns about "weakening" profits at the supermarket giant. In January Tesco issued its first profit warning in 20 years, a shock that was blamed on UK shoppers turning their backs on its stores. "We believe that in light of currently difficult industry conditions, a trend of weakening profitability and low top-line growth will continue," said S&P. Its analysts said Tesco boss Philip Clarke's plans to revitalise the business by hiring more staff and revamping stores would "negatively affect its trading margins", and added: "In our opinion, market conditions will continue to be extremely competitive, particularly in the UK, with high pricing pressure throughout the industry." Tesco could fend off the threatened downgrade by taking a number of actions, S&P said, listing making "targeted" disposals, cutting back capital expenditure or shareholder payouts.