UPDATE: EG Group’s owners cash out ahead of £6.8bn Asda deal

The owners of the petrol stations business EG Group have raised expensive debt-like financing from sovereign wealth and pension funds, handing them hundreds of millions of pounds in fresh cash that could help fund their buyout of the UK supermarket chain Asda.

Brothers Mohsin Issa and Zuber Issa, and the private equity firm TDR Capital, raised the fresh funds at the Jersey holding company through which they own the heavily indebted petrol pump operator.

On Thursday, the offshore vehicle sold new preference shares — considered halfway between debt and traditional equity — to the Abu Dhabi Investment Authority (Adia) and two Canadian pension funds, the Alberta Investment Management Corporation and PSP Investments. 

Holders of preference shares receive interest payments that accrue and compound over time but do not hold a stake or any voting rights in the company.

EG itself will not benefit from the funds raised, the group confirmed, though its Jersey holding company is ultimately liable to pay interest on the preference shares. It comes after the brothers and their private equity backers agreed to buy Asda, the UK’s third-largest supermarket group, in a £6.8bn deal announced last month. 

The company’s owners did not disclose what they would use the fresh funds for during a call with lenders on Thursday, but several bondholders said it could help them fund the supermarket deal, Britain’s largest leveraged buyout in more than a decade. 

“This solves the mystery of where the equity cheque for Asda comes from,” said one EG lender. 

EG declined to comment on whether its owners would use the funds for the Asda deal, but said issuing the preference shares would “not result in any change to the ownership” of the company and “will have no effect on our business”. 

Its owners have previously tapped international funds for this quasi-equity financing, last year selling €400m of preference shares to investors that also included Adia. 

The announcement comes at a time when EG’s sales have crashed because of depressed fuel demand and lower prices at the pump. The company’s like-for-like revenues fell 23 per cent this year, it said on Thursday, from $15.8bn in the nine months ending September 2019 to $12.1bn in the same period in 2020. 

However, like-for-like earnings before interest, tax, depreciation and amortisation had risen 17 per cent to $751m. 

EG is attempting to address concerns about its governance, which led Deloitte to abruptly resign as its auditor last month. It has appointed John Carey, a former executive at BP and at Abu Dhabi’s state oil company Adnoc, as an independent non-executive director, it said on Thursday. 

It is still seeking a chair and an audit committee chair. Before Mr Carey’s appointment, EG’s board was made up only of the brothers and two TDR executives, Gary Lindsay and Manjit Dale. 

Adia and Aimco declined to comment. PSP Investments did not respond to a request to comment. 

Source: Financial Times