Future Retail update!

Future Retail update!

Last updated: 26 Aug, 2020 | 01:46 pm

Future Retail averts default

  • Future Retail has managed to repay $14 million in interest on foreign currency bonds worth $500 million, averting a potential downgrading
  • The company had asked for a 30-day grace period on its interest payments last month on the same notes
  • “A missed payout by Future Retail would have led to rating downgrades by credit rating agencies. This would have made the papers fall into the ‘Default’ category.”
  • Fitch Ratings had downgraded Future Retail in July, after it failed to pay interest on bonds worth $500 million. The rating agency downgraded Future Retail’s long-term issuer default rating to ‘C’ from ‘CCC+.’

Company yet to declare Q4FY20 results

  • The company is yet to declare its Q4FY20 and FY20 results. Future Retail had sought extension till 31st August 2020 to declare the same. Further, the company has sought time till 15th September 2020 to announce Q1FY21 results
  • According to media reports, the results were delayed as Future Group is still to finalise a potential deal with Reliance Industries

Future Retail’s current position

  • Kishore Biyani-led Future Retail had total sales of about ₹20,165 crore in FY19 (the company is yet to declare FY20 results), with a consolidated EBITDA of ₹1,058 crores.
  • Future Retail mainly operates through 3 different types of formats and is the owner of chains including Big Bazaar and FoodHall.
  • According to media reports, Reliance Industries Ltd (RIL) is likely to finalise a deal soon to acquire Future Retail. However, no official announcement has been made so far
  • The main rationale behind the deal for Future Group is to pare its overall debt. According to media estimates, Future Retail alone has outstanding debt of over ₹6,000 crore.
  • “Future Group has six listed companies, with a total debt of about Rs 12,989 crore. About half of this debt is parked in Future Enterprises, which helps all retail back-end and infrastructure.”
  • At the end of December 2019, the group had an interest burden of Rs 1,950 crore across companies.
  • Future Retail has about 1,388 stores across various formats, including Big Bazaar, Fashion at Big Bazaar (FBB), ezone, and Foodhall 

INDmoney Analysis

  • Future Retail’s liquidity position remains under severe pressure on account of the nationwide lockdown imposed to contain the coronavirus pandemic
  • A potential deal with Reliance Industries would help the retailer to stay afloat
  • Currently, the debt papers remain in the high-risk category. Once the contours of the deal are finalised, there will be more clarity about the firm’s future
  • Given the firm’s precarious position and the current stress in the system, it is advisable ‘to err on the side of caution,’ and reduce exposure to the company’s debt papers
  • Invest only in debt funds that have a 100% allocation to AAA-rated papers and a low modified duration.

Find below a list of your debt mutual funds with exposure to Future Retail’s bonds.