India's retail king in BIG trouble

Though Kishore Biyani is selling stakes in group companies to pay off debt, a significant share price crash since January this year is making his task difficult.

A combination of high cost funds from private equities (PE), promoters pledging stakes and falling share prices of listed entities have put the Future group in a crisis.

Though promoter Kishore Biyani is selling stakes in group companies to pay off debt, a significant share price crash since January this year is making his task difficult.

“While it is good news that 80 per cent of the borrowings of holding companies are from PE firms, for which the collateral cover is much lower than funds from banks or mutual funds, the cost of funding can be very high,” said an analyst of Redd Intelligence.

A filing with the ministry of corporate affairs for a Rs 1,300-crore loan for these (promoter entities) has put pricing at an eye watering 26.5 per cent per annum over a four-year term, said the report. 

Promoter entities had a total debt of Rs 11,970 crore with total pledge estimated at over 90 per cent by value across group companies.

Rating firm ICRA said it has received a communication from IDBI Trusteeship Services on April 3 that corporate guarantees on non-convertible debentures (NCDs) amounting to Rs 670 crore of Rural Fairprice Wholesale (RFWL), a 100 per cent subsidiary of Future Corporate Resources Private Limited (FCRPL), were invoked on March 27.

Also, FCRPL has not made the payment.

The matter is now sub-judice after the Future group objected to invocation of the pledge.

The ongoing shutdown of retail outlets due to the coronavirus (Covid-19) pandemic will further put pressure on the group as sales of operating companies fall, said analysts.

As the group tries to sell off its insurance arm to ease pressure on promoter entities, an insurance sector chief executive officer (CEO) said there are no takers in the current market.

Retail King of India

The present crisis faced by Biyani - known for making Big Bazaar a household brand name since early the 2000s - is the most serious.

This is the not the first time Biyani’s group is facing a debt crisis.

“Biyani is to India what the Walton family of Walmart is to the US.

"Biyani’s realised the potential of organised retail far before cash rich promoters like the Ambanis or the Birlas.

"No wonder, he is well known as Retail King of India,” said a Mumbai-based rival.

“But with debt out of control, this is perhaps his biggest test,” he added.

After tasting success with Big Bazaar, Biyani diversified into other businesses such as financial services, formal clothes retailing and insurance.

In 2012, Biyani sold his Pantaloon brand to Aditya Birla group for Rs 1,600 crore.

Pantaloon was the first brand started by Biyani way back in 1987.

The deal was to help Biyani reduce the group’s debt of Rs 7,850 crore.

Post-Pantaloon deal, Biyani sold several other businesses, including financial services, to Warburg Pincus, in 2012.

In 2013, the group decided to sell 51 per cent stake in its general insurance business to L&T for Rs 560 crore but the deal was called off a year later.

Subsequently, promoter companies started raising funds across various entities - leading to the present crisis.

Maze of companies

Biyani’s interest in holding companies are held through four major trusts.

The trusts own four holding companies, which include Future Capital Investment Private Limited (FCIPL), Central Departmental Stores Private Limited (CDSPL), FCRPL and Ryka Commercial Ventures Private Limited (RCVPL).

Future Corporate Resources was downgraded by rating agencies in March due to its high debt and falling financial metrics.

Among the holdcos, FCIPL, CDSPL and FCRPL are purely holding companies while RCVPL has an operating subsidiary Future Lifestyle Fashions.

According to Redd, the total founder group debt continued to rise from Rs 11,790 crore in March 2018 to Rs 11,970 crore in March 2019 despite monetisation efforts in the year ended March 2019.

An email sent to the Future group did not elicit any response.

In financial year 2020, the promoters raised Rs 4,600 crore.

Of this, Rs 1,750 crore was invested by Blackstone after it bought six per cent stake in Future Lifestyle Fashion.

Another Rs 1,430 crore was invested by US online retail giant Amazon in Future Coupon.

Of the proceeds, the group spent Rs 1,440 crore on Future Retail.