Asda reveals higher finance costs as boss defends debt structure
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 the EG group 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
“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.”
The steel tycoon Sanjeev Gupta is mounting a last-ditch bid to salvage his British operations after seeing an emergency plea for government support rejected.
Sky News has learnt that Mr Gupta’s Liberty Speciality Steels UK (SSUK) arm is seeking to adjourn a winding-up petition scheduled to be heard in court on Wednesday.
The petition is reported to have been brought by Harsco Metals Group, a supplier of materials and labour to SSUK, and is said to be supported by other trade creditors.
Unless the adjournment is granted, Mr Gupta faces the prospect of seeing SSUK forced into compulsory liquidation.
That would raise questions over the future of roughly 1,450 more steel industry jobs, weeks after the government stepped in to rescue the larger British Steel amid a row with its Chinese owner over the future of its Scunthorpe steelworks.
If Mr Gupta’s operations do enter compulsory liquidation, the Official Receiver would appoint a special manager to run the operations while a buyer is sought.
A Whitehall insider said talks had taken place in recent days involving Mr Gupta’s executives and the Insolvency Service.
Steel industry sources said the government could conceivably be interested in reuniting the Rotherham plant of SSUK with British Steel’s Scunthorpe site because of the industrial synergies between them, although it was unclear whether any such discussions had been held.
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
Mr Gupta is said to have explored whether he could persuade the government to step in and support SSUK using the legislation enacted last month to take control of British Steel’s operations.
Whitehall insiders said, however, that Mr Gupta’s overtures had been rebuffed.
He had previously sought government aid during the pandemic but that plea was also rejected by ministers.
The SSUK division operates across sites including at Rotherham in south Yorkshire and Bolton in Lancashire.
It makes highly engineered steel products for use in sectors such as aerospace, automotive and oil and gas.
A restructuring plan due to be launched last week was abandoned at the eleventh hour after failing to secure support from creditors of Greensill, the collapsed supply chain finance provider to which Mr Gupta was closely tied.
Under that plan, creditors, including HM Revenue and Customs, would have been forced to write off a significant chunk of the money they are owed.
The company said last week that it had invested nearly £200m in the last five years into the UK steel industry, but had faced “significant challenges due to soaring energy costs and an over-reliance on cheap imports, negatively impacting the performance of all UK steel companies”.
It adds: The court’s ability to sanction the plan depended on finalisation of an agreement with creditors.
“This has not proved possible in an acceptable timeframe, and so Liberty has decided to withdraw the plan ahead of the sanction hearing on May 15 and will now quickly consider alternative options.”
One source close to Liberty Steel acknowledged that it was running out of time to salvage the business.
They said, however, that an adjournment of Wednesday’s hearing to consider the winding-up petition could yet buy the company sufficient breathing space to stitch together an alternative rescue deal.
A Liberty Steel spokesperson said on Tuesday: “Discussions continue with creditors.
“Liberty understands the concern this will create for Speciality Steel UK colleagues and remains committed to doing all it can to maintain the Speciality Steel UK business.”
The Insolvency Service and the Department for Business and Trade have also been contacted for comment.
Energy bills are set to fall from this July and will continue to drop in the autumn and winter, a forecaster has said.
Households will be charged £129 less for a typical annual bill from July as the energy price cap is due to fall, according to energy consultants Cornwall Insight.
From July, an average dual fuel bill will be £1,720 a year, 7% below the current price cap of £1,849 a year.
The price cap limits the cost per unit of energy and is revised every three months by the energy regulator Ofgem.
The official announcement from Ofgem will be made on Friday.
Money blog: How markets reacted to EU-UK deal
Bills had already been made more expensive for three three-month periods, or quarters, in a row, in October, January, and April, as wholesale gas prices rose and European stores of the fossil fuel were depleted due to cold weather.
Electricity prices are tied to gas prices.
The UK is also heavily reliant on gas for home heating and uses a significant amount for electricity generation.
Drops when the cap is next changed in October and January will be “modest”, Cornwall Insight said.
Price falls are not a certainty, however, as weather patterns, gas storage rules, the war in Ukraine, and tariffs could all change pricing.
Please use Chrome browser for a more accessible video player
Which bills rose in April?
Bills still high since Ukraine war
Energy costs have remained elevated following Russia’s full-scale invasion of Ukraine, and bills are still “well above” the levels seen at the start of the decade, said Cornwall Insight’s principal consultant, Dr Craig Lowrey.
“Prices are falling, but not by enough for the numerous households struggling under the weight of a cost-of-living crisis.
“As such, there remains a risk that energy will remain unaffordable for many,” he said.
“If prices can go down, they can bounce back up, especially with the unsettled global economic and political landscape we are experiencing. This is not the moment for complacency.”
Read more from Sky News:
Reeves ‘open-minded’ on banks’ push for ring-fencing reform
Ryanair raises fares after profits hit by lower ticket prices
The government was called on by Mr Lowrey to explore options such as social tariffs, where vulnerable customers could pay less.
Proposals, including zonal pricing, which would see different regions of the country pay different rates, based on local supply and demand levels, are important but must be balanced with the urgent affordability crisis people are facing now, he said.
The continued growth of domestically produced renewable energy is “a positive step forward” and a cause for optimism as it helps protect against global energy price shocks and improves energy security, Mr Lowrey added.
“That progress needs to continue at pace, not just for the net zero transition, but to help build a more stable and secure energy future for all.”
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business3 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway