Asda, the UK’s value supermarket and owner of George, is confronting a substantial surge in its interest expenses on the debt utilized to fund its acquisition. Presently, Asda carries a staggering £4.2 billion of debt on its balance sheet, and by February, it will witness its interest on this debt skyrocket to £426 million due to higher interest rates that are placing strain on the business.

These figures were disclosed by Michael Gleeson, Asda’s chief financial officer, during a hearing with the government’s Business & Trade Committee. Gleeson also elucidated that the company’s debt interest bill will surge by approximately £30 million in February as £500 million of loans transition from a fixed to a floating interest rate. These loans constitute a portion of the debts taken on by Asda’s new owners, the Issa brothers, and private equity firm TDR, to finance their £6.8 billion acquisition of the supermarket in 2021.

During the committee hearing, Gleeson appeared alongside Mohsin Issa, one of the brothers, to address inquiries concerning Asda’s finances and the role of private equity in the supermarket industry. Members of Parliament expressed worries that the substantial borrowing levels could impede grocers’ ability to reduce prices for customers. However, Issa reassured the committee that there are “no gaps” in Asda’s finances and that the supermarket is capable of meeting its debts. He pointed out that the debt leverage ratio has already decreased from 4.2 times to 3.8 times since the beginning of the year, and further declines are anticipated by the end of the year. Furthermore, Issa emphasized that Asda continues to invest in employee wages, customer pricing, and loyalty programs, underscoring the company’s robust cash generation.

Asda’s substantial debt burden and the subsequent rise in interest payments raise concerns about the company’s financial stability. With interest rates on the rise and a significant debt load, careful financial management will be essential for Asda to navigate potential economic challenges. The Issa brothers and private equity firm TDR will also face scrutiny as they navigate the financial implications of their leveraged acquisition. The future of Asda, as well as the effects on its customers and employees, remain uncertain as it confronts these financial pressures.

Useful links:
Financial Times: Asda faces rising interest bill on £4.2bn debt pile
BBC News: Asda’s interest bill on debt ‘to rise to £426m in February’