CARE Ratings downgrade Future Retail long-term loan facilities

CARE has revised the credit rating on NCD issue and a long-term loan of Future Retail to BB+ from A-, citing the weakening of business and financial risk profile on account of the extended lockdown due to COVID-19.

As per CARE Ratings’ report, the rating strengths are tempered due to an increase in the debt levels, significant decline in market capitalisation, which along with high promoter pledge is expected to significantly impact financial flexibility, high working capital cycle, refinancing risk and the intense competition in the retail industry.

Recently, the company has missed the service of the payment of interest due on the USO notes (listed on Singapore Stock Exchange) on July 22, 2020. The company has raised an amount worth USD 500 million in January, on which, the company could not make the interest payment of around Rs 100 crore. Future Retail has mentioned that the liquidity position got affected due to the spread of COVID-19 pandemic and consequently, restricted business operations, which caused this non-payment of interest.

Also, there are rumours, which claim that Reliance Industries is planning to buy Future Group for approximately Rs 24,000-27,000 crore as the latter is currently under heavy debt burden.

Currently, the promoter holding in the company stood at 41.73 per cent. Out of which, 74.90 per cent are pledged. Further, foreign institutional investors (FIIs) have also decreased their stake to 11 per cent in June 2020 from 17.6 per cent in June 2018. Domestic institutional investors (DIIs) have also declined their stake to 3.6 per cent in June 2020 from 4.6 per cent in June 2018.