S&P lowers ratings for Future Retail overseas bonds to 'highly vulnerable'

About Rs 100 crore cash, cash equivalents already eroded

Global rating agency Standard and Poor’s today lowered rating on Future Retails Ltd’s overseas bonds worth $500 million from CCC- to CC, indicating that they are 'highly vulnerable'. The move follows the termination of the deal to sell the ailing company's assets to the Mukesh Ambani-led Reliance group.  

The issuer credit rating remains 'SD', given the continuing default on the onshore bank borrowings.

The rating agency said in a statement that it views a default by FRL on its senior secured notes (bonds) as a virtual certainty. The likelihood of the company failing to make the next coupon payment due on July 22, and any potential accelerated repayment of its notes, has risen significantly, it added.

The termination of the proposed sale of assets to Reliance Retail Ventures Ltd (RRVL) has magnified the risk of a default also due to the initiation of bankruptcy proceedings against the company.

Public sector lender Bank of India, on behalf of lenders, has already filed an application with the National Company Law Tribunal in this regard earlier this month.

Rating agency said Future Retail's liquidity position remains weak. The company reported an EBITDA loss of about Rs 1,050 crore over the nine-month period ended December 31, 2021.

“We expect operating losses to increase further in view of store closures starting earlier this year when the company failed to service its lease obligations. In such a scenario, we expect the company's Rs 100 crore (about $13 million) of cash and cash equivalents as on Sept. 30, 2021, to have eroded materially,” S&P added.

Reliance called-off its deal with Future group after secured creditors to Future retail rejected it. The shareholders and unsecured creditors of FRL have voted in favour of the scheme. But the secured creditors of FRL have voted against the scheme. In view thereof, the subject scheme of arrangement cannot be implemented, Reliance Industries Ltd (RIL) informed BSE. RIL is parent of RRVL.

The meetings of shareholders, secured and unsecured creditors to future group were held to seek approval for the scheme of arrangement between 20 Future Group companies, including six listed, with Reliance Retail Ventures Ltd etc.
 

As a part of deal Reliance Retail was to purchase the retail and logistics businesses of Future Group for around Rs 25,000 crore, which was first announced in August 2020.

Future Retail also faces the risk of an accelerated repayment of its senior notes. Under the notes' covenants, principal and unpaid interest on the notes become automatically due and payable if any bankruptcy proceedings initiated against the company remain un-dismissed for 60 consecutive days, or if the company consents to the liquidation, rating agency added.