Asda pays off £300m as Issa brothers race to slash borrowing

Asda has cleared £300m of debts as its billionaire owners work to reduce borrowing levels across their business empire.

The supermarket paid off a £200m loan used to purchase 132 convenience stores and petrol stations from The Co-op, along with an additional £100m of borrowings.

The repayments have decreased Asda’s net debt from £4.2bn to £3.9bn over three months until September.

However, the figure has since risen to £4.6bn due to the recent acquisition of EG Group’s UK business, bringing Asda’s debts, including lease liabilities, to a total of £7.4bn.

Asda’s owners, billionaire brothers Mohsin and Zuber Issa, have been urgently reducing borrowing levels across their business empire as interest rates surge.

The Issa brothers, who also own EG Group, acquired Asda from Walmart in a highly-leveraged £6.8bn takeover in 2021.

As interest rates have risen, the cost of servicing debt piles has also increased, putting pressure on companies that previously relied on cheap money.

Credit ratings agency Moody’s warned in January that EG Group faced a credit rating downgrade unless it addressed its £7.5bn debt pile.

To reduce borrowings, the Issas sold EG Group’s UK operations to Asda earlier this year for £2bn, adding £770m of high-interest loans to Asda.

The supermarket announced it repaid £300m of borrowing due to “strong cash generation” this year.

Sales, excluding fuel, were £5.4bn in the third quarter, up 2.8% from the previous year.

Michael Gleeson, Asda’s chief financial officer, stated: “Asda has a sustainable capital structure, strong cash generation, and a clear strategy to reduce debt over time, as evidenced by the early repayment of the Co-op business acquisition loan.”

Asda said it invested £130m to decrease prices on over 600 products by an average of 10% during the quarter.

The Issa brothers pledged to lower prices after concerns about high debt levels and the complex corporate structure potentially hindering customer benefits as inflation eases.

Mohsin Issa stated: “Despite inflation easing slightly, we know that many families are still struggling, as disposable income for the average household is 10% down compared to two years ago.”

Sales of its value range, Just Essentials, rose 21% compared to the same quarter last year, surpassing overall sales growth of 3.2%.

Sales of clothing and non-food items dropped 3.4% year-on-year, attributed to “unseasonable weather” over the quarter.