Kishore Biyani-led firm to raise the funds by selling dollar bonds
The restructuring will save Future Retail about ₹650 crore of lease rental payments annually
Kishore Biyani-led Future Retail Ltd, which runs the Big Bazaar chain of stores, is looking to raise up to $400 million by selling dollar bonds, three people aware of the development said. The money will be used to buy retail assets from Future Enterprises Ltd as part of a planned group restructuring exercise, the people said on condition of anonymity.
“The company has hired investment banks Barclays, Standard Chartered, JP Morgan and UBS to help raise the dollar bonds. The company is expected to hit the markets in January for the bond issuance. They could raise anywhere between $200-400 million," said the first of the three persons cited above.
The exercise is aimed at helping the company reduce related party transactions and boost Ebitda (earnings before interest, taxes, depreciation and amortization) by eliminating lease rental payouts to Future Enterprises, which amount to close to $100 million per annum, the second person said. “It will also help the company refinance some of its existing debt," he added.
On 12 October, the company’s board of directors had approved the acquisition of retail infrastructure assets of Future Enterprises in one or more tranches, through direct purchase, acquisition through slump sale or any other mode as mutually acceptable between the two firms. These retail assets are valued at around ₹4,000 crore. According to an 18 November research report by Edelweiss Securities, Future Retail has already paid ₹500 crore as security deposit to Future Enterprises for these assets and thus needs to pay only the remaining ₹3,500 crore, of which ₹1,500 crore will come from Amazon from the stake sale in Future Coupons and the rest from borrowings and internal accruals.
The restructuring will save Future Retail about ₹650 crore of lease rental payments annually, thus bringing down the company’s debt to Ebitda ratio from 2.4 times as of fiscal year 2019 to about 1.5 times by April 2021 and less than 0.2 times in the next three years, resulting in stronger operating cash flows and sustained Ebitda growth.
Having accumulated a net debt of ₹3,646 crore as of 30 September, Future Retail recorded revenue of ₹5,449 crore in the second quarter of this fiscal and profit of ₹165 crore,
The decoupling would help reduce inter-corporate linkages between entities of the Future group, simplifying its structure. It would also result in cessation of the corporate guarantee of about ₹3,600 crore from Future Retail to the lenders of Future Enterprises.
Emails sent to JP Morgan, Barclays and UBS remained unanswered.