Future Retail has been downgraded - and now banks may have another problem
Fitch Ratingsplaced Future Retailon ‘B-(EXP)’ while also placing it under ratings watch negative.
- Big Bazaar stores remain open to sell groceries, however it’s not going to be enough.
- The ratings agency said that groceries and other essential items carry lower margins when compared with discretionary items, such as apparel.
Kishore Biyani’s Future Retail, which runs the Big Bazaar chain of stores, has been downgraded by global ratings agency – Fitch Ratings. The agency placed Future Retail on ‘B-(EXP)’ and also placed it under ratings watch negative.
View all Offers
View all Offers
- 34% OFF
CelloNoveltyLarge 2 Door Plastic Cupboard with lock(Wood , Brown)₹ 6709₹ 10095Buy On
- 53% OFF
Ebee Store Multipurpose Table (Matt Finish, Wenge)₹ 1889₹ 4000Buy On
@home By Nilkamal Matt 1 Seater Recliner with Console (Fabric, Brown, Cocoa)₹ 14499₹ 42900Buy On
Amazon Brand - Solimo Comber High Back Mesh Office Chair (Grey & White)₹ 10089₹ 40000Buy On
SAVYA HOME Apex Zoom Ergonomic Home and Revolving Office Chair (Black)₹ 3139₹ 9000Buy On
“The expected rating is based on the yet-to-be restructured FRL entity; under the restructuring, FRL will buy the in-store infrastructure assets it currently leases from Future Enterprises and the cross-guarantee arrangements between FRL and Future Enterprises will cease,” said the report.
The fact that Future Retail stock fell by 74% for the last three months also had a say in downgrade. “The sustained fall in FRL's share price has lowered FCRPL's flexibility to submit more shares as collateral. This has raised the risk of a reduction in the stake held by permitted holders, primarily the promoters - Amazon.com, Inc,” Fitch said.
AdvertisementNearly all of the promoter group stake of 41.1% stake in FRL has been pledged to lenders. Certain lenders are attempting to invoke pledges on shares that amount to an 8% stake in FRL following a breach of the collateral coverage requirement.
“This will significantly hurt FRL's profitability and cash flow in the quarter ending June 2020, followed by gradual stabilisation over the following few quarters,” said the report.
SEE ALSO: Mukesh Ambani's Reliance Industries will add ₹25,000 crore to its mammoth pile of debt
In the third quarter of FY20, Future Retail posted a 15% fall in profits in the third quarter. It saw its profits go down to ₹170.73 crore from ₹201.43 in the same quarter the previous year.
Its income too went down by 3% from ₹5,306 crore in the same quarter the previous year to ₹5144.5 crore. Even before the Covid-19 pandemic struck, the brick and mortar retail major has been under the throes of an economic slowdown last year, which has affected consumption and also taken a toll on consumer confidence, which slipped to a six-year low.
Dow Jones slumps 800 points after Donald Trump warns of 'painful' times and a 'shocking' coronavirus death toll
Popular on BI
- pi Ventures plans to invest in 25 young startups with its latest $75 million fund
- Best deals on hair straighteners, trimmers and other grooming products on Amazon
- Amazon Republic Day Sale 2022 — Best deals and offers on Echo smart speakers, Fire TV Sticks and more
- Two IndiGo planes avert mid-air collision over Bengaluru airport, DGCA to take strict action
- India's tennis star Sania Mirza announces retirement from the sport by the end of 2022 season