Asda suffers debt downgrade as turnaround falters

Core Viewpoint - Asda's parent company, Bellis Finco, has been downgraded by Fitch from 'B+' to 'B', indicating increased financial strain and potential challenges in its turnaround efforts [1][3]. Financial Performance - Fitch has warned that Asda's profits are expected to decline more than previously anticipated due to increased investments in price cuts and complications from a failed £1 billion IT transition [2]. - Asda's market share has decreased to 11.6%, down from 12.7% since Allan Leighton took charge in November 2024, reflecting ongoing trading difficulties [5]. - The company is facing pressure from rising interest rates, which have increased the cost of servicing its £3.8 billion debt [5]. Strategic Moves - A recent deal to sell and lease back 30 supermarkets worth nearly £600 million is intended to reduce debt but will result in higher rental expenses for Asda [2][6]. - Allan Leighton, the executive chairman, has emphasized a "war chest" aimed at regaining customers through price cuts and improved product availability [4]. Market Challenges - Fitch's negative outlook highlights the execution risks and the need for further investment to recover market share after it hit a record low [3]. - Fierce pricing competition in the market may hinder Asda's plans to boost food sales volumes and footfall, potentially squeezing profits further [7].