February 23, 2024

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Asda reveals higher finance costs as boss defends debt structure | Business News

3 min read

Asda faces increased interest payments of at least £30m from February as loans taken on by the billionaire Issa brothers to fund the £6.8bn purchase of the supermarket start to become due.

Mohsin and Zuba Issa, who made their names founding the EG petrol station group, bought the Asda chain from Walmart in 2021 in a heavily leveraged takeover that has drawn scrutiny from MPs and unions.

In October, Asda in turn bought EG UK in a £2bn deal.

Addressing MPs on the business and trade select committee, Mohsin Issa insisted that despite the sharp increase in the cost of borrowing in the last 18 months, the supermarket group is stable and financially sound.

“We can give you the confidence that it is run properly,” Mr Issa said.

“What I would say is that the debt leverage at the start of the year was at 4.2 times, that has gone down to 3.8 times and that trajectory is to go down even further by the end of this year.

“At the same time, we are investing in colleague pay, customer pricing and loyalty. The business is highly cash generative.”

Asda’s chief financial officer Michael Gleeson told MPs total debt within the Asda company hierarchy was £4.2bn, £500m of which will become due in February and switch to a floating rate that will add “at least £30m” to financing costs.

He said the remainder of the debt is fixed until February 2026.

Mr Issa also faced questions about the company’s labyrinthine and opaque structure, which has 16 different entities between the owners and the supermarket operating company, many of them registered offshore.

The Issa brothers and their family own 45% of the company, with Walmart retaining a 10% stake, and the remainder owned by TDR Capital, the private equity group with whom the brothers funded the takeover.

Mohsin Issa gives evidence to MPs
Image:
Mohsin Issa gives evidence to MPs

“A structure like this is not unusual for a large corporation like Asda. All of these companies are tax registered and pay tax in the UK,” Mr Issa said.

Of the other major supermarkets Morrisons was the subject of a £6bn leveraged takeover last year, Tesco and Sainsbury’s are both publicly listed, while Lidl and Aldi are privately owned in Germany.

Mr Issa conceded that in line with the model of private equity, at some stage TDR Capital would seek to exit. “At some point they will want to go but from the conversations I have had with them, they are long-term investors.”

He also gave MPs an insight into his journey from owning a single forecourt with his brother to running a multi-billion pound retail empire.

“We started with a single petrol station, I washed the restrooms, I manned the tills when I needed to, back then these were places you could not get a snack, it was just gas, and mainly distressed sales,” he said.

“We have the vision of transforming that, we were the first to have Subway in our stations, the first to have Starbucks… we had a mission to transform that tired and sleepy industry.”

Read more:
Asda co-owner mauled by MPs on fuel prices and ‘fire and re-hire’

Earlier the GMB union told MPs it was concerned that “debt levels and the interest payments” at Asda could impact workers in its supermarkets.

Nadine Houghton, national officer for the union, said: “From an Asda perspective, we see a dramatic drop in hours available for shop floor workers, which is intensely increasing the pressure on them, their mental health.

“We’ve seen cuts to the cleaning contract, so we have concerns over the level of cleanliness and maintenance. Violent attacks on our members are up and there are unrealistic productivity measures.

“Really, I think this is a result of the fact that private equity have to pay this back somehow – one of the ways we believe they’re seeking to do this in Asda is through some of these examples we are seeing from the shop floor.”

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