Shares in Tesco tumble as troubled grocer counts the cost of crisis after downgrades

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Shares in Tesco dropped below 170p for the first time since 2003 after the cost of insuring against the grocer failing to repay debts increased by 25 per cent.

The jump in the price of credit default swaps – the complex tool used to insure against a default – is the latest blow for the embattled supermarket, and came after it was downgraded by two credit rating agencies.

Moody’s downgraded Tesco because of worsening performance. This followed a similar move by Fitch.

Bad news: Rating agencies Moody's and Fitch downgraded Tesco

Moody’s said: ‘We have downgraded Tesco because of the materially reduced trading profit for the first half of fiscal 2015.’

The agency explained some of this was due to the fierce competition from retailers Aldi and Lidl ‘as well as the ongoing uncertainties related to the investigation by the FCA [Financial Conduct Authority] into Tesco’s accounting irregularities’.

Tesco posted a 91pc drop in half year profit on Thursday amid a growing accounting scandal in which it has been accused of cooking the books.In a damning sell note by Portuguese investment house BESI Research, analyst Rickin Thakrar warned Tesco remains at risk of a downgrade to junk status.

He said: ‘We continue to believe that Tesco profits could go to zero in the UK, even if Tesco were to generate 1 per cent to 2 per cent underlying sales because of high running costs.

‘Our break-up value is 163p. However, we think a rights issue or asset sales looks necessary in the near-term.’

The shares closed down 2.25p at 168.75p.