Tesco share price: Over £5bn needed to rebuild balance sheet, says Moody’s

on Jun 15, 2015
Updated: Oct 21, 2019

Tesco (LON:TSCO) needs billions of pounds to relieve the burden on its balance sheet, according to analysis by Moody’s. The credit ratings agency, which downgraded the retailer’s debt to ‘junk’ status in January, has estimated that, at the company’s current profitability, Tesco had to raise more than £5 billion to get its investment grade rating back.

Earlier this year, the UK’s largest supermarket chain posted a £6.4 billon annual pre-tax loss – one of the biggest in British corporate history. The group is also sitting on debts of £22 billion including its pension deficit and rental commitments.
Sven Reinke, senior analyst at Moody’s, said in the agency’s report over the weekend: “It [Tesco] has a relatively high level of debt, also of adjusted debt, such as the pension deficit and operating leases. It is a relatively high-leveraged company. That was acceptable for an investment grade company until now because they had decent profit margins.”
Reinke noted that Tesco needed to reduce its adjusted debt to earnings before interest, tax depreciation and amortisation ratio from more than six times to less than 4.5 times to get its credit rating back. That means that if profits remained at their current level, the company would have to raise £5 billion in fresh capital.
Tesco is due to update the market on trading on June 26, the same day as its annual meeting. Analysts expect the FTSE 100-listed retailer to report another fall in like-for-like sales, potentially as much as three percent. However, Tesco is thought to be preparing to sell off its South Korean arm, valued at £3.9 billion. The retail giant is also weighing offers for its consumer data business Dunnhumby, the sale of which could raise around £1 billion.
Tesco’s share price dipped 0.89 percent at the opening bell this morning. By 08:14 BST, the stock had gained some ground, trading 0.14 percent lower at 213.40p.
As of 08:26 BST, Monday, 15 June, Tesco PLC share price is 213.70p.