Mohsin Issa was among the witnesses at a meeting on Tuesday that looked at the use of private equity in the retail sector. Photo: Jamie Lorriman < p>Asda's debt interest bill is set to top £400 million within weeks as rising interest rates put pressure on the private equity-owned supermarket.
Michael Gleeson, Asda's chief financial officer, told Business & The trade committee said on Tuesday that the company's debt interest bill will rise by as much as £30 million in February when half a billion pounds of loans switch from fixed to floating rates.
The £500m of borrowings are part of the debt taken on by the supermarket to finance its 2021 acquisition of Asda. Brothers Mohsin and Zuber Issa bought the retailer in a highly leveraged takeover for £6.8 billion along with private equity firm TDR.
The supermarket currently has around £4.2 billion of debt. and in 2022, accumulated interest payments will be £396 million. The annual bill could rise to £426m in February if interest rates don't fall before then.
< p>The interest bill on Asda's debt has risen from around £90 million in 2021 as the Bank of England quickly raised interest rates to combat inflation.
Mr Gleeson appeared before the committee alongside Mohsin Issa on Tuesday to answer questions about the company's finances and the role of private equity in the supermarket sector. Lawmakers worry that high levels of borrowing will prevent grocers from passing on falling prices to customers.
Mr Issa said there were «no holes» in Asda's finances and insisted the supermarket would be able to cover its debts. He told MPs: «I would say debt leverage at the start of the year was 4.2 times, then fell to 3.8 times, and by the end of this year this trajectory should decline even further.»
» At the same time, we are investing in colleague pay, pricing and customer loyalty . This business is very profitable.”
The Issa brothers have spent much of last year selling off assets to pay off loans taken out by their EG Group petrol station empire.
This included the £2 billion sale of EG Group's UK assets to Asda earlier this year. which in turn saddled Asda with hundreds of millions of pounds of additional debt.
Mr Issa was recalled by the committee after he was accused of misleading MPs about Asda's structure.
Mr Issa was recalled by the committee after he was accused of misleading MPs about Asda's structure.
Mohsin Issa wrote to MPs last week denying that the brothers set up companies within their vast corporate empire in Jersey for tax reasons after Evening Standard reports revealed errors in previous documents lodged with the Business and Trade Committee. Mr Issa blamed it on an «administrative error».
Morrisons also faces the prospect of paying off a huge amount of debt after it was taken private in a £7bn deal by private equity firm Clayton , Dubilier & Rice in 2021
The deal added more than £6 billion to the company's balance sheet, resulting in annual interest payments of around £400 million.
Mohsin Issa avoids decision as Asda's debt burden grows
Co-owner struggles to turn things around under questioning by the Business and Commerce Committee
By Hannah Boland
Within minutes of Mohsin Issa's speech to MPs on Tuesday, it appeared to be a repeat of the Asda boss' speech in a car crash earlier this year.
“I would say we chose to invest in the best interests of our clients,” the billionaire retail tycoon said. “Customers are at the center of everything we do.
“In the two years that we have owned the business, we have raised wages twice.”
Labour's Ian Lavery said it was all good. However, he reminded Issa that the question he asked was about Asda's debt stock, not its employees or customers.
There was almost a collective groan among MPs.
On Tuesday, Mohsin again found himself under the scrutiny of the Business and Commerce Committee as talk of a rift between him and his brother Zuber mounts in the retail sector.
His appearance came just months after he was accused of «wasting time» during an earlier select committee hearing when he struggled to answer questions directly.
The lack of clarity over Asda's business dealings has increased scrutiny of the supermarket boss, particularly from MPs who have been fighting since the summer to gain insight into Issa's complex corporate empire.
Tensions came to a head last month when Liam Byrne The Labor Party committee chairman accused Issa of contempt over claims he misled parliament by failing to warn MPs about errors in evidence.
Mohsin subsequently blamed the incident on an administrative error and Tuesday provided an opportunity for the Asda boss to ease tensions and provide clarity.
Initially it appeared it might not provide the answers MPs were looking for as they questioned Mohsin about what he owns Asda, and asked why various organizations were based offshore in Jersey.
This time, however, fortunately the Boss brought with him colleagues from Asda's senior management who appeared to be more familiar with the details the committee was looking for.
“For us, this will not affect the activities of businesses registered in Jersey,” said Asda chief financial officer Michael Gleeson.
Instead, he added, “companies registered in Jersey may, in the long term, facilitate corporate restructuring faster than is likely to occur in England and Wales.”
That provides more flexibility if a company wants to sell a certain part of the business, Gleason said, as he dismissed talk that companies would be based there for tax purposes.
It was a more detailed response than in July, when Issa simply replied that some companies were registered in Jersey because «that's what our consultants recommend we do.»
The pattern was reflected in other issues as Gleeson also defended Asda's debt structure at length, seeking to allay concerns about over-leveraging.
Asda's total debt is £4.2 billion, but Gleeson said it was being reduced.
Meanwhile, questions about staffing have been addressed Hayley Tatum, Asda's HR director
When asked why union bosses say pressure on workers is increasing, Issa handed the floor to Tatum, who argued the retailer was spending more on its staff.
Issa's reluctance to answer questions frankly will spark fresh criticism of his management of Asda's business, especially given he has been at the helm since he and his brother bought the supermarket for £6.8bn at the start of 2021 — with supported by private investment company TDR Capital.
The scale of the task has created a geographical split between the two brothers, with Mohsin running Asda's day-to-day operations from Leeds and Zuber overseeing their EG petrol station empire from Blackburn.
The situation has fueled rumors of a rift between the couple, which one senior retail insider said is «irreparable.»
However, last weekend, sources close to Issas claimed that Mohsin and Zuber meet regularly and talk every day.
However, Mohsin's firm grip on Asda's business has raised questions about how and when the company will find a new CEO.
Mohsin said on Tuesday that Asda was still trying to find the right candidate and that the company had met with several suitors.
But importantly, Mohsin added: “I would say that I am actually the best fit.” for this work.»
He said he was instrumental in the spin-off of Walmart's IT systems following the US giant's sale of the business, and said he had reformed Asda's leadership team.
“In my two-plus years at Asda, I have been able to build a very experienced management team,” he said.
He said Asda had been unable to find a new CEO for lack of trying, but for lack of suitable candidates.
Industry insiders speculated that Mohsin was actively involved in the project. Asda's performance could pose an obstacle to finding a successor.
After all, Mohsin made one thing clear on Tuesday.
“We’re here to stay,” said the billionaire owner. “We actually get up for Asda every day. This is what we do.”
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