#ISIS DRAW 2.5 PLUS#

Lewis has had to suspend eight senior staff over the profit mis-statement and is grappling with an internal forensic investigation and a probe by Britain’s financial regulator. “Investors should only back one horse in this race.”īut a rights issue could be complicated by the accounting scandal. “With Tesco addressing some of its problems by using a rights issue, this would limit the ability of its competitors to go down a similar route to respond to a rebasing in profits,” he said.

He believes that could also block Sainsbury’s from following a similar path as it too has come under trading pressure. HSBC analyst David McCarthy thinks Lewis should act quickly, and ask shareholders for at least 3 billion pounds to fight back against its main British rivals - Wal-Mart's Asda WMT.N, Sainsbury's SBRY.L, and Morrisons MRW.L. The crisis came to a head this year, with three profit warnings in 64 days and the discovery of the accounting mistake, leaving billionaire Warren Buffett to describe his near 4 percent stake in Tesco as a “huge mistake”. Its big out-of-town stores lost favor as shoppers moved to buy more locally and online, while discounters Aldi and Lidl and upmarket chains Waitrose and Marks & Spencer MKS.L put the squeeze on the middle ground.įactbox: Tesco CEO could buy time by selling assets The mistakes cost it dear, as it was slow to respond to changes in shopping habits. Once an apparently unstoppable engine of growth, Tesco started to hit problems in the late 2000s when it held back investment at home to spend on new operations in Asia and eastern Europe, and an expensive failure in the United States. A one notch cut would leave Tesco a single notch above “junk” status.

#ISIS DRAW 2.5 PLUS#

Those factors, plus plunging profits, mean credit ratings agencies have warned they could downgrade the firm. Meanwhile, its pension deficit is 3.2 billion pounds from 2.4 billion a year ago. Its debt-to-equity ratio is 0.76 versus an industry median of 0.53, Reuters data show. Its adjusted net debt of 6.6 billion pounds is now 3.2 times operating cash flow, way ahead of a company target of 2.5 times and likely to rise, according to Morgan Stanley.

Yet pressure is building on Tesco’s finances. Harris, which has $130 billion of assets under management, is not convinced Tesco will need a rights issue at all, unless UK operating profitability totally collapses. “No rights issue without a detailed strategy and without first trying to sell non-core assets at good prices,” said David Herro of investors Harris Associates, which recently cut its stake in Tesco to 1 percent from 3 percent. Plus, several investors want to see the recovery plan first. Some analysts and investors think Lewis should take advantage of his status as a new arrival to ask shareholders for money, rather than selling off valuable businesses such as its stores in Thailand or customer data specialist Dunnhumby.īut a rights issue, which some think should top 3 billion pounds ($4.8 billion), could prove a hard sell when Tesco is in the midst of investigations into the discovery of a 250 million pound black hole in its accounts. And that’s even before it starts to consider the cost of a plan to revive sales. Trading at the British retailer has deteriorated to such an extent that its debt and ballooning pension deficit mean it could do with more cash. Pedestrians walk past a Tesco store in Bow, east London August 29, 2014.

Isis draw 2.5