Asda’s debt leverage declining, asserts Mohsin Issa

ASDA’S co-owner Mohsin Issa has assured MPs that the supermarket group is stable and financially sound despite the high interest rate environment.

Issa and his brother Zuber took over the Leeds-based retailer from Walmart in a debt-fuelled £6.8 billion deal backed by the private equity firm TDR Capital in 2021.

The Issa siblings and their family together hold a 45 per cent stake in Asda as does TDR, while Walmart has retained the remaining 10 per cent. Asda bought EG Group - a forecourt chain founded by the brothers - in a £2 bn transaction in October this year.

However, the Business and Trade Committee of the Commons has been flagging concerns about Asda’s complex corporate structure and its leveraged position.

Issa, who faced questions from the committee in its latest session on Tuesday (19), said the debt leverage of the retailer was declining and the trend was set to continue.

He said, "We can give you the confidence that it is run properly."

"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."

He said he believed TDR Capital was a “long-term” investor in the company although the private equity firm could exit “at some point of point”.

While private equity was used to buy out several retailers, including Asda when the cost of borrowing was low, the parliamentary committee previously expressed concern that the rise in interest rates “have left businesses bought using such leveraged buyouts with a heavy debt burden.”

Asda’s chief financial officer Michael Gleeson told the MPs that £500 million out of the company’s total of debt £4.2 bn was payable in February and a switch to a floating rate would take the financing cost higher by "at least £30m".

Issa also talked about how he and Zuber made a humble beginning as entrepreneurs and how they grew with their “vision” and “mission”.

"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."