How the brothers bought Asda for £ 6.8 billion with a small tax bill

The new owners of Asda built a business empire fueled by billions of pounds in debt, low tax bills, and links to a chain of global tax havens including Jersey and the Cayman Islands.

Blackburn-based Mohsen and Zober Issa struck a £ 6.8 billion deal with TDR private equity backers to buy a majority stake in Asda from US parent company Walmart.

The pair – who own the gasoline giant EG Group – have been hailed as a pioneering duo from humble beginnings in a listed home in Blackburn. Chancellor Rishi Sunak responded by saying that it was “wonderful to see” Asda returning to “the British majority ownership”.

But an investigation by The Mail on Sunday found that the Issa brothers’ stake in the EG Group falls within Jersey’s tax-friendly jurisdiction. The documents obtained reveal a paper path of a number of entities in other tax havens – Luxembourg, Dublin and the Cayman Islands.

The EG Group’s massive debt accumulation of £ 7.7 billion also means that interest payments and financing costs last year completely wiped out its operating profit of £ 373 million.

The structure means the losing group paid only £ 55m in taxes over five years – including two years when the company paid no tax to the company at all – despite total revenue of £ 37.5bn for the period. More than half of its total corporate tax bill stemmed from an unexpected profit it made on dumping part of its business in Germany.

By contrast, Asda paid a £ 94.5m tax on £ 23bn and £ 800m in profits last year.

Sources in the city said they believe the Issa brothers and TDR will borrow for their stake in Asda’s business to pay for the deal.

So far, the meteoric rise of the Issa brothers has gone almost unnoticed outside the world of high finance. But in the past five years, Essas has quietly overseen a ten-fold growth in the business of the EG Group, which is headquartered in Blackburn but now extends to the UK, Europe and America, with an annual turnover of 20 billion euros (18.1 billion pounds) last year. .

This growth was driven by a wave of bold takeovers in an era of extremely low interest rates using cheap debt from global financial markets.

New York-based credit rating agency Standard & Poor’s earlier this year described its debt buildup as “significant” against a “soft” backdrop of weak economies, as many motorists who regularly use petrol stations cut gasoline bills by working from home.

The documents obtained reveal a paper path of a number of entities in other tax havens – Luxembourg, Dublin and the Cayman Islands

Understandably, Isas and TDR’s plan to bring more convenience Asda outlets to the front yards as a growth pathway for the supermarket chain, which a source said last night has become “unpopular” by Walmart.

Walmart, which will keep a stake, attempted and failed to integrate Asda – which uses the Save Money, Live Better logo – with Sainsbury’s.

Tax experts told The Mail on Sunday that there is growing concern about companies weakening their financial arrangements or eliminating profits and corporate taxes.

Amazon has been criticized for paying £ 14.5 million in corporate taxes annually from British services when its sales in the UK are around £ 14 billion. Like many other companies located abroad, it insists its total tax contribution to the UK is much higher.

The scrutiny is likely to rise as the government seeks to recoup the massive funds poured into companies hit by the coronavirus and the economy to avoid a deep recession.

The Blackburn residents struck a £ 6.8bn deal with private equity backers TDR to buy a majority stake in Asda from Walmart, the US parent of the supermarket chain.

Last month, Andy Higginson, president of rival Morrison’s, urged the chancellor to raise new taxes to pay for the economic damage caused by the coronavirus, with a one-off tax from companies that move profits abroad through complex corporate structures.

Paul Monaghan, CEO and co-founder of Fair Tax Mark, warned that heavily indebted companies have little room to maneuver if their circumstances change or interest rates suddenly rise.

He said, “People are starting to wake up to the danger to society because there are so many highly leveraged companies providing vital services. They fly near the wind, and once they hit a rocky patch, they don’t have the reserves to live in.

“Retail food retailing at the moment, especially if we go into another shutdown, is a nationwide service. Seeing a large retailer being taken over by a highly leveraged entity would worry a lot of people.

He said the new rules setting the level of tax write-offs against interest rates mean that companies like EG Group are obligated to pay some corporate taxes, despite the losses.

“If these rules are tightened, as many people want, then the capital available for companies like this will shrink,” he added.

A report released last year by the Tax Justice Network described the Channel Islands as the “top out there with the worst” of the world’s most “aggressive” tax havens, ranking Jersey at number seven. The Cayman Islands occupied the top three, along with the British Virgin Islands and Bermuda.

Barclays is understood to be the lead lender in a £ 4 billion debt package to fund the Asda acquisition.

A source close to the brothers said that they and the group “are paying all owed taxes.” Another said the new owners are preparing a “very large capital check” to pay at Asda.

“The new owners will continue to build strong and successful businesses, capitalizing on new capital and experience, as well as valuable links with the largest retailer in the world,” Walmart said in a statement on Friday.

Representatives of the Issa brothers and the KKE declined to comment.