Asda repays £300m while Issa brothers race for a reduction in borrowing

Asda paid off £300m in debts, as its billionaire owners raced to reduce borrowing levels throughout their business empire.

The supermarket has cleared a £200m debt it took on to purchase 132 convenience stores from The Co-op in the past year. It also paid back an additional £100m.

Asda’s net credit decreased from £4.2bn in September to £3.9bn during the three-month period.

This figure has risen since to £4.6bn due to the recent acquisition by EG Group of UK’s UK operations, a transaction that closed at the beginning of this quarter. Asda’s total debts, including lease liabilities, are £7.4bn.

As interest rates rise, Asda’s billionaire owners Mohsin Issa and Zuber Issa have scrambled to lower borrowing levels throughout their empire.

In 2021, the Issa brothers who own EG Group and also own the petrol-station company EG Group acquired Asda in a high-risk, highly leveraged takeover of £6.8bn from Walmart.

Interest rates are on the rise, and so is the cost to service debt. This has increased pressure on businesses that relied on cheap loans in the past.

Moody’s, a ratings agency, warned in January of EG Group’s risk of a downgrade if it did not come up with a plan for addressing its debt pile.

As part of a plan to reduce debt, Issas has sold the UK operations of EG Group to Asda for £2bn earlier this year. Asda was saddled with £770m in high-interest loans.

The supermarket announced on Tuesday that it had been able to repay £300m in borrowings thanks to a “strong cash-generation” this year.

The third quarter sales, excluding fuel, were £5.4bn. This is a 2.8pc increase compared to last year’s same period.

Michael Gleeson said that Asda had a sustainable capital, strong cash flow and a clear strategy for deleveraging over time. This is demonstrated by the early repayment of loan facility used to purchase the Co-op Business.

Asda announced that it invested £130m to lower the prices of over 600 products on average by 10pc during the last quarter.

After MPs asked whether the high debt levels of their empire and its complex corporate structure could prevent them from offering customers a better deal when inflation eases, the Issa Brothers have pledged to lower prices.

Mohsin issa stated: “Despite the slight easing of inflation, we still know that many families struggle, as the disposable income of an average household has dropped by 10 percent compared to just two years ago.

Just Essentials sales were up by 21pc in comparison to the same period last year. This was higher than overall sales growth of only 3.2pc.

Asda has blamed “unseasonable” weather for the decline in clothing and non-food sales.