Fitch downgrades Future Retail
Puts the retail major on rating watch list, saying it may face liquidity challenge
New Delhi: Fitch Ratings on Thursday said it has downgraded Future Retail's rating and put the company on Rating Watch Negative (RWN) list reflecting heightened risk to its liquidity position.
In a statement, Fitch said it has downgraded the firm's Long-Term Issuer Default Rating (IDR) to 'B-(EXP)', from 'BB(EXP)', and the expected rating on its $500 million 5.6 per cent senior secured notes due in 2025 to 'B-(EXP)' with a Recovery Rating of 'RR4', from 'BB(EXP)'. Future Retail operates several retail chains including Big Bazaar.
"The expected rating is based on the yet-to-be restructured Future Retail Ltd's (FRL) entity; under the restructuring, FRL will buy the in-store infrastructure assets it currently leases from Future Enterprises Ltd and the cross-guarantee arrangements between FRL and Future Enterprises will cease. We will look to convert the expected ratings to final once the transaction is completed and the cross-guarantee is removed, ensuring that the final terms and conditions of the notes conform to our understanding," it said.
The downgrade, Fitch said, reflects the heightened risk to FRL's liquidity position due to a sharp fall in its share price, which has prompted lenders at its promoter shareholder - Future Corporate Resources Pvt Ltd (FCRPL) - to demand more of FRL's shares as collateral.
"The sustained fall in FRL's share price has lowered FCRPL's flexibility to submit more shares as collateral," it said.
Nearly all of FCRPL 41.1 per cent stake in FRL has been pledged to lenders and certain lenders are attempting to invoke pledges on shares that amount to an 8 per cent stake in FRL following a breach of the collateral coverage requirement.