S&P keeps Tesco at BB+, but outlook unchanged at 'stable'

Analysts at Standard&Poor's hailed Tesco's announcement of an imminent cash and shares merger with food wholesaler Booker.

Nonetheless, the grocer's high pension deficit and intention to resume paying dividends in the fiscal year ending February 2018 meant its quality as a debtor would be "constrained" over the 24 months, S&P said in a statement.

There were also execution risks around its cost optimisation strategy and the proposed transaction to contend with, S&P said.

Hence, the ratings agency reaffirmed its then current rating on the corporate's long-term debt at BB+ but kept its outlook on the same at 'stable'.

"The stable outlook reflects our expectation that Tesco will implement the operating strategy and measures that the management has announced, while restricting dividends and capital expenditure such that the group is able to reduce S&P Global Ratings-adjusted debt and maintain credit metrics that are commensurate with the 'BB+' rating," S&P said.

As of 1622 GMT, shares in Tesco were up by 0.62% to 195.80p.