Asda’s debt has been downgraded by ratings agency Fitch just days after the Leeds-based retail and etail giant agreed a near-£600bn deal to sell off several stores in a sale-and-leaseback deal.
The influx of new cash appears not to have impressed the agency as profits in the leading supermarket are forecast to slump more than anticipated.
Ratings agency Fitch confirmed this week it has reduced its rating of the supermarket’s holding company Bellis Finco from “B+” to “B,” as it raised concerns over its future prospects, The Telegraph reported.
Fitch cautioned that profits would decline by more than previously anticipated this year, as the grocery giant invested more money into price cuts and grappled with the fallout of its IT transition.
The agency said a recent deal to sell and lease back dozens of stores worth nearly £600m would impact Asda’s finances, since it would be required to pay more in rent.
Fitch also explained its negative outlook “reflects the heightened execution risk” as well as the further investment required to regain customers following Asda’s market share falling to a record low.
The business warned that intense pricing competition could make the supermarket’s plans to improve food sales volumes and boost footfall more competitive, resulting in a further profit squeeze.
An Asda spokesman said: “Asda is a highly cash-generative business that serves millions of customers each week.
“We remain confident in our long-term strategy and the strength of our customer proposition.”
Last week, it was reported that Asda has raised around £568m in new cashflow from two sale-and-leaseback deals, as its owner TDR Capital used the grocer’s property assets to boost its finances before its debt repayment to former owner Walmart.
According to two people familiar with the matter, reported in the Financial Times, the retail giant, which has also undergone a recent shakeup in its marketing team, agreed a £467m deal with asset manager Blue Owl and Supermarket Income REIT to sell and lease back 20 shops as well as a depot in Lutterworth, Leicestershire.
