By early next year Asda is set to see its debt interest bill exceed £400m, driven by escalating interest rates that are piling pressure on the private equity-owned supermarket.
The grocer’s chief financial officer Michael Gleeson told the Business & Trade Committee on this week that the company’s debt interest bill would rise by as much as £30m in February when half a billion pounds of loans switch from a fixed to floating interest rate.
The £500m in borrowings are part of the debts taken on by the supermarket to finance the acquisition of Asda in 2021. Brothers Mohsin and Zuber Issa bought the retailer in a highly-leveraged £6.8bn takeover alongside the private equity firm TD
The £500m in borrowings are part of the debts taken on by the supermarket to finance the £6.8bn acquisition of Asda back in 2021 by brothers Mohsin and Zuber Issa and private equity firm TDR.
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The grocer currently has around £4.2bn of debt, accruing interest payments of £396m in 2022 and that annual bill is on track to rise to £426m in February unless interest rates fall before then.
Asda’s debt interest bill has risen from an estimated £90m in 2021 as the Bank of England has rapidly increased interest in a bid to bust inflation.
The Telegraph reports that Gleeson appeared before the committee beside Mohsin Issa on Tuesday to answer questions about the company’s finances and the role of private equity in the supermarket sector.
MPs fear the high levels of borrowing will prevent grocers from passing on falling prices to customers.
Issa stressed there were “no gaps” in Asda’s finances and insisted the supermarket could cover its debts.
He told MPs: “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.”
The Issa brothers have spent much of the last year selling off assets in order to pay down borrowings accrued by their petrol station empire EG Group.
This included the £2bn sale of EG Group’s UK assets to Asda earlier this year, subsequently burdening Asda with an additional debt amounting to hundreds of millions of pounds.
Issa defended his running of the company to MPs and said had “chosen to invest in customers”, including spending £140m on price cuts to help with the cost of living crisis, at the expense of profits.
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