The Daily Telegraph

Asda warned over funding Co-op petrol stations deal

- By Oliver Gill

THE billionair­e brothers behind Asda have been warned their debt-fuelled acquisitio­n of Co-op’s petrol stations will heap fresh pressure on the finances of Britain’s third-biggest supermarke­t.

Ratings agency Fitch said that taking on more loans to acquire Co-op’s 129 forecourts, coupled with falling profits, will leave Asda laden with debts for longer than previously anticipate­d and risked a downgrade of the rating of the supermarke­t’s financial strength.

Co-op announced last week that it had struck a deal with Asda to offload the sites for £600m.

Mohsin and Zuber Issa, Asda’s owners, plan to fund the deal with £200m of debt, Fitch said.

Asda is already carrying £6.8bn of debt after the Issas and their private equity fund backers stumped up less than £800m in equity to buy the supermarke­t in 2020. Fitch said taking on £200m of additional loans to fund the Co-op swoop meant that there would be “no debt reduction in 2022”.

Asda is grappling with declining likefor-like sales, Fitch said. Coupled with rising debt levels, this could trigger a downgrade of the supermarke­t’s debt.

A downgrade by a ratings agency indicates the finances of the company are more risky than previously thought. As a result, investors would typically demand high interest payments to compensate them for the elevated risk.

But analysts at ratings agency Moody’s said earlier this month that the Co-op acquisitio­n would “accelerate” Asda’s move into the convenienc­e store sector and “could also help stem Asda’s steady UK sales market share losses”.

The Asda deal with Co-op is subject to sign-off by the Competitio­n and Markets Authority.

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