October 19, 2018 / 10:46 AM / a month ago

Moody's ratings downgrade rounds off tough week for Spain's DIA

Oct 19 (Reuters) - Moody’s has cut its credit ratings for Spanish supermarket chain DIA and also put the ratings under review after the company issued its third profit warning in 12 months earlier this week.

“Our decision to downgrade DIA’s ratings and to place them under review reflects Moody’s view that earnings will fall meaningfully in 2018 and 2019, on the back of market share losses in Spain and currency depreciation in emerging markets,” Moody’s analyst Vincent Gusdorf said.

Moody’s decision to cut DIA’s senior unsecured long-term ratings to “Ba2” from “Baa3”, below investment grade, is the latest blow to the retailer which has lost more than two thirds of its market value since a 2015 peak.

On Monday, DIA said it expected adjusted core earnings (EBITDA) of between 350 and 400 million euros ($458.4 million) versus 568 million euros in 2017.

The magnitude of the earnings revision highlights weaknesses in DIA’s business model and governance, which will likely make it difficult to recover its competitive position and improve its operating performance going forward, Gusdorf said.

After making gains from cash-strapped customers during Spain’s economic crisis, DIA is now struggling against tough competition from local rival Mercadona and German discounters Lidl and Aldi.

LetterOne, an investment vehicle owned by Russian tycoon Mikhail Fridman, prompted speculation of a possible takeover when it disclosed a 29 percent stake in DIA last month. This is just below a 30 percent threshold where an investor must make a full buyout offer under Spanish law.

$1 = 0.8726 euros Reporting by Joanna Jonczyk-Gwizdala in Gdynia Editing by Isla Binnie and Jane Merriman

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