S&P puts Tesco on watch

Standard & Poor’s said it placed the BBB long-term corporate credit rating and A-2 short-term corporate credit rating on Tesco plc on CreditWatch with negative implications.

The negative watch comes after Tesco’s board identified an overstatement of the group’s expected profit for the half year, which it believes could have been caused by the accelerated recognition of commercial income and delayed accrual of costs, S&P said.

Based on preliminary investigations into the U.K. food business, Tesco believes that in the guidance it issued Aug. 29, it overstated the group’s profits for the six months to Aug. 23 by an estimated £250 million, the agency said.

The board has commissioned an independent and comprehensive review, working closely with external financial and legal advisers, S&P said.

The ratings on the company also reflect the company’s strong business risk profile and geographic diversification, the agency said.

Market conditions also are expected to remain highly competitive, particularly in the United Kingdom, which accounts for about two-thirds of Tesco’s retail sales and profits, S&P said.

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