Asda began a review of its £8.6bn real estate, as its owners look for ways to reduce its expensive debt.
To combat rising interest rates, the billionaire Issa and his brother, are pursuing the sale and leasingback of Asda’s supermarket estate.
According to market sources, property experts were called in to evaluate the potential for the supermarket’s estate. According to Asda’s 2021 annual reports, freehold properties were valued at £8.6bn. Companies House has yet to receive Asda Group’s 2022 annual report.
Asda’s owners intend to keep a substantial “underpin” of freehold properties, even if many sites are sold to investors or leased back.
TDR and the Issas shocked the City by purchasing Asda in a £6.8bn debt-fueled deal in that they invested only £800m equity.
The cost of living and rising interest rates have put pressure on the business. In recent months, paying down debt has been a top priority.
A sale or leaseback of Asda’s properties would solve one problem, but could also risk another. This is because it will reduce interest payments in return for higher rent.
In January, it was revealed that Asda and the UK arm EG Group were under consideration for a merger. This is the same company that ran the Issas’ successful petrol station business. However, such a move is likely to be under close scrutiny by competition regulators.
Asda is currently discussing ways to lower its interest payments. The Issas are also seeking to lessen the debt-fueled dealmaking by EG Group.
City sources claimed that lenders were informed last week that the company was in talks to sell off certain parts. EG stated to bondholders that it is seeking $2.2bn (PS1.83bn), in addition to the $1.5bn sale of US property it had announced.
EG stated to investors that the company will only have a “sustainable level” of debt once all deals have been completed.
EG Group spokesperson said that they are happy to offer different options and will evaluate the merits of each option to support our long-term strategy.
“EG Group continues making good progress across all its business areas and this week announced a very resilient financial performance for 2022 – despite macroeconomic headwinds.”
Asda declined comment.