Will Asda debts and £4 billion family rift hurt the Issa brothers?

When Mohsin and Zuber Issa jointly won the EY Entrepreneur of the Year 2018 UK award, the world was their oyster.

From cleaning the toilets at their parents' gas station to building the Euro Garages gas station empire in nearly 6,000 locations in ten countries, their story was the ultimate rags to riches story. And that was just the beginning.

Two years later, the Blackburn brothers staged their most daring coup yet when they took control of the Asda supermarket chain in a £6.8 billion debt-fuelled takeover.

For the record, a fortnight after the deal was announced, the pair were awarded CBEs for services to business and charities.

As interest rates soared and the cost of living came under pressure, the Issas must have realized that the era of cheap money that had powered their remarkable rise was over.

Nevertheless, they doubled down and continued buying.

While Asda's warehouse network was sold, netting £1.7 billion, plans to offload the grocer's petrol stations to help pay off debt were scrapped.

Instead, older brother Mohsin, 52, who was by then running Asda, decided not only to keep the forecourt operations but also to expand Asda into convenience stores.

This was a major strategic change for the food and clothing giant, even though the brothers made their millions by putting brands like Subway and KFC into gas stations.

Asda bought the Co-op's petrol stations for £600m, followed by the UK and Irish stations of Issa's own EG Group in a deal worth £2.3bn.

These acquisitions burdened the grocer with even more debt. A further £30 million in interest payments will be added to the annual debt service of £400 million in February.

Mohsin Issa last week assured concerned MPs at Parliament's Business and Trade Committee that Asda is “highly cash generative” and that the borrowing burden on its £4.2 billion outstanding debt – excluding leases – had fallen.

He also told them he saw 'a real opportunity' to 'build an ecosystem' for Asda's 18 million weekly customers around convenience stores.

However, not everyone is convinced the new strategy will work – especially when Asda's debt load is taken into account.

Conservative MP Mark Pawsey claimed the Asda deal was 'a huge leap' for the Issas and that Mohsin did not have the 'skills and background' in retail to run the Leeds-based retailer at a time when higher interest rates are so have an impact.

Mohsin insists he is “best qualified” for the role, but said he would hand over the reins when Asda has finally found a CEO. The company has been trying to fill the post since respected retailer Roger Burnley stepped down in August 2021.

Asda continues to lose market share to discounters Aldi and Lidl, but insists it will grow after the EC deal.

A company spokesperson said: 'Under the current owners, Asda's retail footprint has grown from 630 stores to 859 today – and the company is expected to have 1,000 stores by March 2024, making Asda the largest retail precinct in its 58 year history. will have history.'

He added that the company has also opened 81 rebranded Asda Express convenience stores this month – a mix of standalone stores and EC forecourt stores.

Asda has denied reports of a disagreement between the brothers over strategic or family issues.

MPs will revisit the Asda deal when directors of TDR Capital – the private equity group with a 45 per cent stake in Asda – appear before them next month.