CARE Ratings Downgrades Future Retail Debt To Default
CARE Ratings Ltd. downgraded Future Retail Ltd.’s debt to default after the Kishore Biyani-founded company delayed repayments under its one-time resolution plan.
The company defaulted on its first repayment obligation of Rs 3,494.6 crore to banks and other lenders as it has not been able to monetise assets in due time, according to its exchange filing. These were due on Dec. 31.
That prompted CARE Ratings to downgrade its non-convertible debentures as well as long-term and short-term bank facilities to ‘D’ (default) grade.
“Due to ongoing litigations with Amazon.com NV Investment Holdings LLC, the company was not able to complete the planned monetisation of the specified business as contemplated in the OTR Plan to discharge the aforesaid obligations to banks/lenders, on due date,” Future Retail said in a stock exchange filing. The company has implemented OTR with effect from April 26, 2021.
Future Retail in August 2020 sold its assets to Reliance Retail Ventures Ltd. for Rs 24,713 crore. But Amazon, which had invested in Future Coupon Pvt. in 2019, challenged the deal and won an interim stay from the Singapore emergency arbitrator. After India's competition watchdog suspended approval to Amazon's investment in Future Coupons, Future Retail has petitioned the Delhi High Court to terminate Amazon's case.
Future Retail has Rs 6,278 crore of outstanding long-term and short-term facilities as well as Rs 199-crore NCDs, according to a CARE Ratings note.
The company availed multiple moratorium on loans from lenders—one as part of the Covid-19 package announced by the Reserve Bank of India in March 2020 and then the central bank's one-time window rolled out in August. According to the debt recast scheme, Future Retail has a grace period of one month from the due date to repay lenders. If it is still in default with any lender, the account will be classified "non-performing".
“As discussed with the banks/lenders, the company would be cooperating for completing the monetisation of the specified business within the next 30 days as per directions of the banks to resolve the current situation,” Future Retail said.
For FY21, the company reported profit after tax of Rs 3,180 crore on total operating income of Rs 6,426.8 crore. Its profitability was significantly impacted on account of pandemic-induced lockdowns. Most of its stores shut or operating at minimal inventory caused severe disruption in company's operating cycle.
In the first half of FY22, Future Retail posted a net loss of Rs 2,266.9 crore on a total income of Rs 3,755.7 crore. For the first half of the ongoing fiscal, the corresponding figures are Rs 1,238.6 crore on a total income of Rs 2,911.8 crore. "Deteriorated operational performance on account of Covid-19 outbreak remains a key rating weakness," noted CARE Ratings, which is now rebranded as CARE Edge.