Vishal looks to restructure debt

Vishal looks to restructure debt

New Delhi: Vishal Retail Ltd and banks that loaned it money are in the process of going in for a corporate debt restructuring (CDR) exercise in an attempt to revive the fortunes of the cash-strapped retailer, according to three people with direct knowledge of the matter.

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Lenders to the retailer whose stocks are listed on the Bombay Stock Exchange and the National Stock Exchange, including State Bank of India and HDFC Bank Ltd, are said to have agreed to this.

Vishal is the second chain after Subhiksha Trading Services Ltd to attempt such an exercise after the economic slowdown kept buyers out of shops and inflicted losses on retail businesses. In January, Subhiksha became the first retailer in India to file for a CDR exercise after it ran out of cash and shut about 1,600 stores around the country. Vishal Retail, according to one of the persons with knowledge of the matter, is seeking to reschedule debt of around Rs730 crore and repay this over nine years at an interest rate of 6%. None of the three persons familiar with the matter wanted to be identified.

Banks “have no other choice but to go for a CDR", said the first person. “Otherwise, we have another Subhiksha…in the next three months it (Vishal Retail) will be on the deathbed."

He added that Subhiksha’s downfall and its unsuccessful attempt to restructure debt prompted Vishal’s lenders to act fast and try to nurse it back to health before it was too late.

In Subhiksha’s case, after the consortium of 13 banks failed to file a CDR proposal by the end-July deadline, the retailer, in August, filed a case in the Madras high court seeking a settlement with the lenders.

The first person said that as part of the CDR proposal, Vishal Retail’s founder and managing director Ram Chandra Agarwal would step down and hand over the reins to a new CEO appointed by the banks. Agarwal didn’t respond to Mint’s queries seeking comment.

Starting with a tiny clothing store in Kolkata in 1986, Agarwal built Vishal Retail into one of India’s largest discount store operators. But in recent months, Agarwal’s hands-on style of management has been criticized by some of the retailer’s current and former executives, as reported by Mint on 19 August.

Investment bank SBI Capital Markets Ltd has drafted the CDR proposal and the banks are expected to file the proposal to Mumbai-based CDR mechanism office in the coming days.

The economic slowdown has hit India’s emerging breed of modern retailers hard, causing many firms, including Subhiksha, the local unit of US-based MyDollarStore Inc., and a lingerie chain from Oswal Group to shut operations altogether. A recent Mint report showed that the so-called organized retailers, including Subhiksha, Pantaloon Retail (India) Ltd, Aditya Birla Retail Ltd, Spencer’s Retail Ltd, Reliance Retail Ltd among others, have closed at least 2,000 stores nationwide in the past year. Some of them have also opened outlets in this period.

Vishal incurred losses of Rs115 crore for the last quarter of 2008-09, but managed to cut losses in the June quarter of 2009-10 to Rs90 crore.

The firm, which runs around 170 discount supermarkets nationwide, is trying to sell off inventory of about Rs630 crore through heavy discounts.

Its plans to raise about Rs200 crore through a qualified institutional placement have remained a non-starter in a tough money market. Dwindling cash flow has also seen Vishal offer shares to its vendors instead of cash as reported by Mint on 6 August.