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.
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