A leading credit rating agency has warned Tesco and Sainsbury's, the UK's numbers one and three retailers, that purchasing part or all of the Safeway chain could adversely affect their own credit ratings.

Standard & Poor's suggested that the "marginal benefits" of buying the 480-store Safeway estate would be offset by a weakening of both retailers' financial profile.

Tesco is currently rated A+ with a negative outlook and has already weakened its profile in the last 12 months with the debt-funded purchase of the T&S convenience chain last October. S&P believes its rating will worsen unless financial rations begin to improve next year.

Sainsbury's, rated A- with a negative outlook, is in the midst of restructure and, said S&P, would lose flexibility through any debt-funded purchase.

Asda is less likely to suffer a negative effect, due to its Wal-Mart backing. It has a AA rating with a stable outlook. Morrison is not rated, but would be in line for a BBB+ if it acquired Safeway, said S&P.

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