Asda bosses claim ‘no holes’ in finances despite £4.2bn debtby
New year, new loan obligations for Asda, which must cover an extra £30m interest on the first tranche of a £4.2bn debt repayment due in February, bosses told MPs amid criticism of the supermarket’s complex accounting structure.
Asda’s bosses have attempted to play down the firm’s £4.2bn debt, telling MPs there are “no gaps” in the supermarket’s finances despite concerns over its accounting practices.
Mohsin Issa, who with his brother Zuba bought the firm in 2021, faced questions on Tuesday from Parliament’s Business and Trade Select Committee about the supermarket chain’s future.
The brothers founded the EG petrol station group, and acquired Asda from US retail giant Walmart in a heavily leveraged deal that drew criticism from unions and lawmakers.
In October, Asda in turn bought the EG group in a £2bn deal.
Issa said there should be no concerns about Asda’s financial health despite confirming it holds £4.2bn of debt, adding there is no money unaccounted for in its accounts.
“I can assure you there is no gap in the accounts signed off by our auditors,” he said.
The debt is spread across multiple UK-registered companies.
MPs pushed Issa on the amount owed and if he worries about it.
“No, I don’t,” 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 in highly cash generative.”
Chair of the committee, Liam Byrne MP, said he was troubled by the “very large but unclear amount of debt” the firm is carrying.
The supermarket chain’s chief financial officer, Michael Gleeson, confirmed the firm is expecting around £30m of additional interest costs in February, as £500m of the debt will be subject to new, floating borrowing rates.
The brothers funded the £6.8bn purchase of Asda with loans of which the first wave are due next year.
Despite the high cost of borrowing over the last 18 months, Issa insisted that the supermarket group is financially sound.
“We can give you the confidence that it is run properly,” he said.
The remainder of the debt is fixed until February 2026, Asda’s leadership said.
Lost in the supermarket (holding companies)
Gleeson also pushed back on Asda’s use of holding companies based in Jersey within its accounting, adding that the firm pays UK corporation tax on all its operations.
“Companies registered in Jersey can, in the longer term, facilitate corporate restructurings more quickly than can happen in England and Wales,” he said.
Registering the companies in Jersey helps the business reduce its exposure to stamp duty upon selling any lines, he said, noting that while the process can also take place through UK-based companies, it is slower.
Asda’s maze of 16 different registered entities was highlighted by MPs as opaque.
The Issa brothers and their family own 45% of the supermarket, with Walmart retaining a 10% stake. The remainder is owned by TDR Capital, the private equity group with whom the brothers partnered to fund the takeover.
“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,” Issa said.
Issa said by the nature of the private equity model, TDR Capital would eventually 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.”
‘A huge drag’
Asda rival Morrisons was bought via a £6bn leveraged takeover by US private equity firm CD&R last year. It has warned staff the business requires a major overhaul to improve its finances as its debt spirals.
Experts said even the positive outlook for supermarket retail may not be enough to chip away at the enormous sums owed.
“The prospects for food in 2024 look good, but I'd still rather not be Morrisons with £6bn debt or Asda with £4bn,” said retail analyst Chris Field. “Debt servicing will be a huge drag on their ability to keep prices low and the suppliers may not be keen to help out.”
Tesco and Sainsbury’s are publicly listed, whilst Lidl and Aldi are privately owned in Germany.
During an earlier panel, the GMB union told MPs it believed that “debt levels and the interest payments” at Asda would likely lead to job losses as the private equity side squeezed the business.
“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,” said Nadine Houghton, national officer for the union.
“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.”
Litany of errors
The brothers’ debt levels were also the subject of intense speculation following an error in the annual accounts of one of their firms, EG Finco.
A typo in the documents stated the business had taken out a “Tranche B Euro loan” of more than £500bn, rather than the £500m figure it should have been. The auditors said they are aware, but the accounts will not be restated.
Prior to the hearing before MPs, the Issas also apologised for another mistake recently, in a letter to MPs concerning their description of the complex corporate ownership structure for Asda which indicated they were using tax havens.
The Standard newspaper first reported the litany of errors submitted by the pair as they sought to quash claims of tax dodging, blaming an administrative error.
In a statement, the brothers said: “We would like to take this opportunity to confirm that no companies in the Asda ownership structure are incorporated in jurisdictions outside of England and Wales due to any ‘tax haven’ status.
“We can further confirm that all of the companies set out in the Appendix to this letter are UK tax resident regardless of where they are incorporated, they each file UK corporation tax returns and pay UK corporation tax on profits in accordance with UK tax legislation.”