Future Retail has repaid Rs100 crore ($14 million) interest on its $500 million foreign currency bonds that was due on Monday, after a 30-day grace period. A missed payout would have meant rating agencies downgrading the company to default category, and other lenders putting pressure on it to meet repayment obligation or face invocation of pledged shares. This in turn could have also significantly impacted their valuation for their sell-out plan to Reliance Industries.
In a stock exchange notice Monday, Future Retail said it has made the payment of interest for the half year ended for an amount of $14 million on 5.60% senior secured notes due 2025.
“The retailer managed to secure the funding through internal accruals and cash flow generated from its stores over the past week as banks refused to support them for the repayment,” said an official who didn’t wish to be identified.
Future Retail, after last month’s default, said it was hoping to make the coupon payment within the 30-day period by improving operating cash flows through bank funding or arranging for alternative sources of funding, including the sale of certain assets. It also said liquidity could improve with a potential equity recapitalisation, which could bring in a strategic investor.
However, banks had frozen sanctioned limits for various Future Group companies due to uncertainty on their future cash flows, and also refused to lend them money to pay interest on the upcoming bond payments.
Apart from the latest payout, Future Group is also burdened with net debt of about Rs 12,989 crore with all shares of promoters being pledged with lenders. RIL has been in talks to buy more than 1,700 supermarkets and lifestyle stores including Big Bazaar and Central owned by the Future Group, a deal that could help the retailer stay afloat.
In a stock exchange notice on Friday, Future Enterprises, which currently holds all retail back-end and infrastructure, said it has delayed its August 22 board meeting for approving financial results by a week to August 28. “Future Group had earlier hoped that Reliance deal contours could have been discussed last week but there is still no clarity. Hence, they decided to delay it for a week although the deal still looks uncertain,” said another person privy with the deal negotiation.
For Reliance Retail, a deal could give them sway over a network of nearly 1,800 stores and control over nearly 40% of India’s organised retail market. Within the pure-play retail business, Reliance’s store network is skewed towards the consumer electronics segment that accounts for nearly three-fourth of its overall store count but generates a fourth of its revenues. In comparison, the grocery segment with 800 stores contributes just 7% of its store network but a fifth of its sales, indicating the potential clout that Reliance could achieve by adding 1,300 grocery stores owned by Future Retail.