Fitch Ratings downgraded Future Retail Ltd., the retail arm of Kishore Biyani-led Future Group, after it failed to pay interest on bonds worth $500 million.
The ratings agency downgraded Future Retail’s long-term issuer default rating to ‘C’ from ‘CCC+’. It also cut the rating on its $500-million bonds, with a yield of 5.6%, due in 2025 to ‘C’ from ‘CCC+’, according to a statement.
According to Fitch's ratings rationale, 'C' implies exceptionally high level of risk and default is imminent or inevitable. A CCC rating denotes substantial credit risk where default is real possibility.
The Indian retailer was unable to pay off the semi-annual interest payment of Rs 104 crore on its U.S. dollar bonds on July 22, 2020. “The company (Future Retail) has a 30-day grace period to satisfy the payment obligations. It continues to negotiate with banks for the release of further peak working capital facilities, which were due earlier in July, but which the company said were delayed due to procedural issues,” according to the statement. “It (Future Retail) said it will cure the missed payment when it receives cash inflows from further bank funding, the sale of assets or an equity injection from strategic or financial investors.”
But if this does not happen during the grace period, according to Fitch, this will constitute an “event of default” and the rating agency will likely downgrade Future Retail’s issuer default rating and the rating on the bond to ‘RD’.
Future Retail’s liquidity position, according to Fitch’s statement, remains under severe pressure on account of the nationwide lockdown imposed to contain the coronavirus pandemic. While India relaxed some of the restrictions in June, leading to a slight pick-up in the retailer’s sales, the localised outbreaks led to several states re-imposing curbs.
Shares of Future Retail closed 4.98% lower on Friday at Rs 548.40 apiece, compared with the Nifty 50 Index's 0.19% drop.
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