Future Retail avoids default; makes $14 million interest payment on foreign bonds

Super market giant Future Retail, which has been hit hard due to the COVID-19 lockdowns, has managed to avert a default by paying the half-year interest on its dollar-denominated bonds on Monday.

On July 22, the Kishore Biyani promoted company had informed the stock exchanges that it had missed the interest payment of $14 million due to the “nationwide lockdown imposed to restrict the spread of COVID-19 pandemic", adding that due to the consequent restricted business operations of the company, "the liquidity position had been affected.”

The terms of the issuance of the 5.60 per cent senior secured notes that will be due in 2025, provided for an additional 30 days for payment of interest. The retailer had been in talks with lenders to raise funds to make the interest payment.

“The company has made the payment of said interest for the half year ended for an amount of $14 million,” Future Retail said on Monday.

Future Group’s debts rose over the years as it expanded its business. Its troubles mounted in the last few months as the strict nationwide lockdown imposed amid the rapid spread of COVID-19 led to shut down of malls and markets. That meant, barring grocery stores, much of Future Group’s retail empire which includes apparel and electronics stores, which generate higher margins, was hit hard.

As of September 30, 2019, it had debt of Rs 12,778 crore.

The company is learnt to be close to a sale deal, with Reliance Industries being the front runner. According to reports, three Future entities—Future Retail, Future Lifestyle and Future Supply Chain Solutions—will be merged into Future Enterprises and Reliance will acquire a stake in the merged entity.

Neither Future Group nor Reliance have confirmed the talks yet.

“The management of the company continues to explore and evaluate various opportunities or associations in the interest of the company and its stakeholders, as and when considered appropriate... At present, there is no such decision taken by the board of directors or any of its committees, which calls for dissemination of information or disclosure of event,” it had said on July 28.

After missing the interest payments last month, CARE Ratings had downgraded its ratings on various debt instruments of Future Retail to BB Plus from A minus.  
“The rating strengths are tempered due to increase in debt levels, significant decline in market capitalisation which along with high promoter pledge is expected to significantly impact financial flexibility, high working capital cycle, refinancing risk and the intense competition in retail industry,” the credit ratings agency had said.

Another ratings agency Acuite also downgraded ratings on Future Retail’s commercial papers to A4 from A4 plus and on its proposed non-convertible debentures to C from BB plus.

Future Retail’s shares closed down 6.6 per cent to Rs 114.25 on Monday, even as the broader markets ended sharply higher; the BSE Sensex closed at 38,799.08, up 364 points or 1 per cent.