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Asda faces financial challenges as £900m Walmart repayment looms

December 2, 2024

Asda faces financial challenges, including a £900m repayment to Walmart by 2028, prompting scrutiny over its debt structure and raising questions about the future of the UK supermarket giant.

Concerns are growing over Asda’s financial stability as the UK supermarket giant faces a £900 million repayment to its former owner, Walmart, by 2028.

The repayment, which includes £500 million for Walmart’s remaining stake and £400 million in interest, has prompted credit rating agency Fitch to warn of a potential overhaul of Asda’s capital structure.

The repayment represents another hurdle for the nation’s third-largest grocer, which has faced a turbulent period since its 2021 acquisition by private equity owners TDR Capital and the Issa brothers in a £6.8 billion debt-driven deal. Over this time, Asda’s market share has dipped from 14.8% to 12.5%, while cost-cutting measures have drawn criticism for impacting in-store operations and customer experience.

Fitch has downgraded Asda’s earnings forecast by £185 million, adding to the pressure. The credit agency noted that refinancing the supermarket’s £3.2 billion debt earlier this year provided temporary relief but resulted in higher interest costs. It suggested that a full restructuring of Asda’s finances might be needed by 2027 to accommodate the looming Walmart repayment.

Allan Leighton, who succeeded Lord Rose as chairman in October, has pledged to tackle Asda’s sales slump, aiming to restore its price competitiveness and improve stock availability over the next three to four years. However, industry observers question whether its private equity owners will commit the significant investment required — potentially exceeding £1 billion.

In August, TDR Capital and co-owner Mohsin Issa injected £30 million into Asda to address immediate financial concerns. Despite these measures, Fitch has signalled that Asda’s ability to repay its debts without major refinancing remains uncertain.

An Asda spokesperson defended the business’s financial health, highlighting its robust cash generation and a reduction in leverage from 4.1x to 3.0x over the past 18 months. “Asda is a highly cash-generative business with a strong and stable capital structure,” they said, adding that net debt has decreased by £100 million in the past quarter to £3.8 billion.

While Leighton’s strategy and Asda’s refinancing efforts offer a roadmap for recovery, the looming repayment to Walmart continues to cast a shadow over the grocer’s financial stability.