EG Group, the debt-laden company founded by the British billionaire Issa brothers, is looking to exit Australia after just over five years in the country, according to people familiar with the matter.
The convenience retail and gas station operator is eager to sell a business unit it has already had to write down in value twice, according to a person who asked not to be identified discussing confidential information.
There have been discussions with interested parties in recent months, the person said, but agreeing an acceptable price could be difficult. EG bought 540 petrol station sites in Australia for $1.73 billion in 2018.
“If an asset is potentially more appropriately owned by a third party, then the board will consider it,” a spokesperson for EG said, adding that the group regularly reviews the company’s portfolio.
It’s the latest change afoot at EG, which was founded by Mohsin and Zuber Issa in 2001 in Blackburn, England, before growing rapidly with the backing of private equity firm TDR Capital. Today the group owns more than 6000 sites across Europe, Australia and the US. The brothers and TDR also control UK supermarket Asda.
Diverging paths
An exit from Australia would mark both the further breakup of EG Group and the growing distance in the two brothers’ business interests.
Zuber recently revealed a plan for him to step down as co-chief executive officer of EG, leaving the company in the hands of his older brother Mohsin, according to a bond prospectus seen by Bloomberg News. Chief operating officer Salim Hasan also intends to step down. Those changes will only happen once Zuber completes his own deal to buy a number of sites from EG Group, according to the document.
The transaction with Zuber is one of a number that EG has agreed to as it tries to lower its debt and high borrowing costs. Last year, EG agreed to a sale-and-leaseback of more than 400 stores in the US, and in December it agreed to sell all of its KFC restaurants in the UK and Ireland. It also struck a deal to sell its UK and Ireland gas station business to Asda for about £2.3 billion ($4.4 billion) and amended and extended a large chunk of its debt.
Later in the year, EG also raised $US500 million of private bonds which allow it to pay interest with additional debt rather than in cash, on top of $US1.6 billion equivalent public bonds.
In March, EG reported earnings before interest, taxes, depreciation and amortisation of $US1.1 billion for 2023, its lowest in four years.
Higher debt expenses are eating into EG’s profits. The money raised in November came at interest rates of about 13%, almost triple the rate of its bank loans five years earlier.
Australian competition
Exiting Australia could prove difficult, and two of its largest competitors have already sold out. Competitor 7-Eleven was sold by its family owners for $1.71 billion to 7-Eleven International, a joint venture between Japan-listed Seven & I and the US business. And in April last year, convenience retailer On The Run was sold to Australian fuel supplier Viva.
In both 2021 and 2022, EG wrote down the goodwill value of its Australian business by $100 million, according to its annual results. The unit recorded a 15 per cent drop in Ebitda in 2023, according to an investor presentation released on March 4.
Initially, EG had planned further expansion in Australia, and in 2020 offered to buy Caltex Australia, which would have added a further 2000 sites in the country.
However, part of the challenge the group faced in Australia was lower fuel volumes and changes in excise duties. Logistics became difficult during Covid too, due to Australia being so far away from its UK headquarters, with the US and Europe viewed as having more potential.
Extracted in full from: https://www.afr.com/companies/energy/british-petrol-station-billionaires-face-australian-nightmare-20240405-p5fhtq
