Concerns are growing about Asda’s financial stability, with the UK supermarket giant facing a £900m repayment to its former owner, Walmart, by 2028.
The repayment, which includes £500m for the remaining stake in Walmart and £400m in interest, has prompted credit rating agency Fitch to warn of a possible overhaul of Asda’s capital structure.
The payment represents another hurdle for the country’s third-largest grocer, which has faced a turbulent period since it was taken over by private equity owners TDR Capital and Issa Brothers in 2021 in a debt-driven deal worth £6.8bn. During this time, Asda’s market share fell from 14.8% to 12.5%, while cost-cutting measures attracted criticism for their impact on in-store operations and customer experience.
Fitch Ratings cut Asda’s profit forecast by £185m, adding to the pressure. The credit agency noted that the refinancing of £3.2bn supermarket debt earlier this year provided temporary relief but led to higher interest costs. He suggested a complete restructuring of Asda’s finances may be needed by 2027 to accommodate Walmart’s looming repayment.
Alan Layton, who succeeded Lord Rose as chairman in October, has pledged to address Asda’s declining sales, with the aim of restoring its price competitiveness and improving stock availability over the next three to four years. However, industry observers question whether private equity owners will commit to the significant investment required – which is likely to exceed £1bn.
In August, TDR Capital and co-owner Mohsin Issa injected £30m into Asda to address immediate financial concerns. Despite these measures, Fitch noted that Asda’s ability to repay its debts without the need for significant refinancing remains uncertain.
An Asda spokesperson defended the company’s financial health, highlighting its strong cash generation and a reduction in leverage from 4.1x to 3.0x over the past 18 months. “Asda is a highly cash generating business with a strong and stable capital structure,” they said, adding that net debt fell by £100m last quarter to £3.8bn.
While Layton’s strategy and Asda’s refinancing efforts offer a roadmap to recovery, Walmart’s looming payout continues to cast a pall over the grocer’s financial stability.
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