Concerns over Asda’s financial stability are growing as the British supermarket giant must return £900 million 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 possible overhaul of Asda’s capital structure.
The repayment presents a new hurdle for the country’s third-largest grocer, which has endured a turbulent period since being acquired in 2021 by private equity owners TDR Capital and the Issa brothers in a £6.8 billion debt-driven deal. During this period, Asda’s market share has fallen from 14.8% to 12.5%, while cost-cutting measures have drawn criticism for the impact on store operations and the customer experience.
Fitch has cut Asda’s profit forecast by £185 million, adding to the pressure. The credit agency noted that the refinancing of the supermarket’s £3.2 billion debt earlier this year provided temporary relief but resulted in higher interest costs. It suggested that a complete restructuring of Asda’s finances could be needed by 2027 to meet Walmart’s threatened refund.
Allan Leighton, who succeeded Lord Rose as chairman in October, has pledged to tackle Asda’s sales slump, with the aim of restoring price competitiveness and improving stock availability over the next three to four years. However, industry observers question whether private equity owners will make the significant investments needed – potentially in excess of £1 billion.
In August, TDR Capital and co-owner Mohsin Issa injected £30 million into Asda to address immediate financial problems. Despite these measures, Fitch has indicated that Asda’s ability to repay its debt without major refinancing remains uncertain.
An Asda spokesperson defended the company’s financial health, highlighting its robust cash flow generation and reduction in debt 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 fell by £100m to £3.8bn last quarter.
While Leighton’s strategy and Asda’s refinancing efforts provide a roadmap to recovery, the looming refund to Walmart continues to cast a shadow on the grocer’s financial stability.