Asda wants to raise £2.6bn in order to refinance its debt burden

Asda will raise more than £2.6bn in order to refinance part of its debt after the UK supermarket revealed results that showed adjusted profits rose by about a quarter.

The third largest supermarket in Britain has been saddled with high debt levels since the billionaire Issa Brothers bought it with TDR, a private equity firm, three years ago.

The UK grocery store, previously owned by US group Walmart is using a recovery in the corporate debt market to extend maturities for borrowings due in the year 2026.

Asda is marketing to investors a €1.05bn loan and will raise an additional £1.75bn debt according to the terms. The new loan is due to mature in 2031.

Investors believe that the £1,75bn will likely take the form a bond issue to be announced within the next few days. Asda refused to comment on the refinancing plan.

Asda announced on Monday that both revenues and adjusted profits grew last year. The group’s low cost range Just Essentials, and its launch of a loyalty app, helped to drive sales in a time of rising costs of living.

The company’s preferred measure of profit, adjusted earnings after rent, rose by 24 per cent, to £1bn. Revenues increased 7.1% to £21.8bn while like-for-like sales rose by 5.4 percent. Asda refused to disclose a number for its pre-tax profit.

Asda’s sales momentum slowed down in the second half, but despite an increase in sales, data from the industry shows that Asda consistently outperforms its larger rivals Tesco, and J Sainsbury.

Clive Black, retail analyst at Shore Capital said: “Commendable reduction of debt is important and will relieve pressure on Asda. However, it is ceding market share to short-term cash in its search for quick cash.”

The Issa Brothers, who co-own the petrol station empire EG Group along with TDR, are seeking to simplify their asset division.

Last month, EG Group announced that it is in discussions to sell some UK assets Zuber Issa as part of an effort to reduce its debt.

Mohsin issa has previously denied speculations about a dispute with his brother. Asda declined to comment Monday on reports that Zuber is in talks with TDR to sell his 22.5pc stake in the grocery chain.

Mohsin ISSA, who is currently running Asda, but plans to relinquish daily control once a new chief executive has been found, described Asda as a “powerhouse” built on “rock-solid foundations”.

Asda’s net debt was £3.8bn by the end of 2023. More than 90% of it was secured at fixed interest rates. After its finance costs increased to £225mn from £185mn around 2022, the company stated that it was “fully dedicated to further deleveraging”.