Both Fitch and Moody’s downgraded Tesco’s rating – with the latter saying it could be dropped further to junk status depending on the outcome of the ongoing investigation into its accounting practices.
Moody’s cut the rating on Tesco from Baa2 to Baa3, while Fitch has dropped it from BBB to BBB-.
Moody’s vice president and senior analyst Sven Reinke said: “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.”
The downgrades concluded another dismal week for the retail giant which said on Thursday it was scrapping its full year update after revealing the blackhole in its finances was, in fact, worse than expected.
The group – which stunned investors recently by announcing it had overstated profits by £250m – yesterday adjusted the accounting error to £263m.
Tesco’s chairman Sir Richard Broadbent is also to step down, the retailer said this week, to “draw a line” under the recent troubles, although whether this will really mark the end of the issues clouding the retailer remains to be seen.
The Financial Conduct Authority (FCA) has already launched an investigation into the matter which could yet result in fines for the business.
Shares moved substantially lower yesterday, dropping another 4.8% to close at 171p. Year-to-date shares are down 48.9%.
