Asda can handle higher debt costs, MPS told

ASDA’S private equity owner has insisted the chain can handle higher borrowing costs, amid concerns its huge debt will hamstring the business.

Gary Lindsay, managing partner of TDR Capital, which co-owns Asda with billionaire brothers Mohsin and Zuber Issa, told MPS on the business select committee he was “more than comfortable” with Asda’s debt burden.

Concerns have been raised about the chain’s £4.2bn of debts and the impact of sharp interest rate hikes on Asda’s business.

The Issas and TDR completed their debt-fuelled takeover of Asda in early 2021 at a time when interest rates were at a record low 0.1pc. Borrowing costs have since surged to 5.25pc, meaning Asda faces starkly higher interest costs as it refinances its debts.

However, Mr Lindsay told the committee: “We feel more than comfortable with the leverage level at Asda. We feel more than comfortable that when we decide to refinance the balance sheet in the next two or three years the business can more than absorb that incremental cost.”

TDR joined forces with the Issa brothers to buy Asda in a highlyleveraged £6.8bn takeover. Since then, Asda has bulked up by acquiring more than 100 Co-op stores and the UK assets of the Issas’ petrol station business, EG Group.

Critics claim the Issas are restructuring their business empire in order to manage debts. However, Mr Lindsay said it was part of broader plans to grow Asda. He said a bigger supermarket would be better able to service debts.

He told MPS: “We’ve invested organically £1.3bn in the business. That’s on some stores and clearly a very significant investment in colleagues.”

Mr Lindsay claimed Asda’s previous owner Walmart had failed to boost the business and there were opportunities to improve its performance.

Asda’s chief financial officer Michael Gleeson previously told the business committee in December that 95pc of Asda’s debts are on fixed rates.

Asda’s debt payments totalled £396m in 2022 and the annual bill would rise to £426m in February, Mr Gleeson said.

Mr Lindsay said the company had taken action to reduce borrowing costs but was unable to give further details because Asda’s bonds were traded on the debt markets.

The TDR chief ’s appearance is the third time Asda’s backers have been called to appear in front of MPS.

Mohsin Issa was criticised by the committee over his first appearance in July, when MPS accused him of “wasting time” by failing to answer questions. He was recalled on Dec 19 after he was accused of misleading MPS about the financial structure of Asda.

Mr Issa blamed an “administrative error” in previous submissions to the committee.

TDR and the Issas were previously criticised by MPS for the complex financial structure and transparency of the Asda group.

Three quarters of the companies associated with Asda are registered in Jersey. TDR deputy general counsel Emma Gilks, who appeared alongside Mr Lindsay, defended the structure as “extremely transparent”.

She said: “The Asda structure for a business of its size and scale is not unusual. We believe it is entirely appropriate.” Asda was criticised for charging motorists high fuel prices last year after the Competition and Markets Authority found it had bumped up margins during the cost of living crisis.

Mr Lindsay denied it was intentional. He said: “There wasn’t a particular strategy to bump the price of fuel or to make a larger profit on fuel.”

Suggestions that the company was “moving profit around between fuel and food” were wrong, he said.

Mr Lindsay added: “We are incredibly competitive when it comes to price across the business.”

TDR, which employs 85 people, owns 14 businesses: the portfolio size is unusually small for private equity.