MOODY'S Investor Service has downgraded its investment rating for Tesco to "junk", despite investors responding positively to moves to revive the troubled supermarket group's performance.
The influential credit ratings agency said structural change in the UK grocery industry, which has seen discounters Lidl and Aldi grow market share at the expensive of the "big four" chains, will continue to affect Tesco's performance.
This is in spite of the share price rallying in response to measures announced by chief executive Dave Lewis to cut costs, boost performance and shore up the balance sheet.
Moody's downgraded its rating from Ba1 to Baa3, and said the rating outlook is stable.
Sven Reinke, vice president and senior analyst at Moody's, said: "We have downgraded Tesco's ratings because of our expectation that the structural changes in the UK grocery retail market will continue to challenge the company's operating performance even with the benefits of the significant restructuring actions announced by the company earlier today.
"Moreover, we think that the company's efforts to stabilise the UK operations and to protect the balance sheet, while helpful, will take time to implement and the company's financial profile is likely to remain leveraged beyond what we consider to be commensurate with an investment grade profile."
Mr Lewis announced plans on Thursday to shut 43 stores and call a halt to 49 expansion projects, including eight in Scotland, as part of a range of measures to boost its stuttering performance.
The moves were announced as Tesco turned in an improved trading performance in the third quarter. Like for like sales, excluding fuel, fell by 2.9 per cent in the 19 weeks ended January 19, compared with a 5.4 per cent fall the previous quarter.
Shares in Tesco closed XX.
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