Fitch downgrades Future Retail's long-term rating to 'C' on missed coupon

It also downgraded the rating on its $500 million, 5.6% per cent senior secured notes due in 2025 from 'CCC+' to 'C'
Fitch Ratings has downgraded Indian retailer Future Retail Ltd's (FRL) Long-Term Issuer Default Rating (IDR) from 'CCC+' to 'C' as the Kishore-Biyani controlled firm missed payment of semi-annual interest on bonds.

It also downgraded the rating on its $500 million, 5.6% per cent senior secured notes due in 2025 from 'CCC+' to 'C'.

Rating action follows FRL's announcement that it was unable to make a semi-annual interest payment of $14 million on US dollar bonds on July 22, Fitch said in a statement.

The company has a 30-day grace period to meet its payment obligations. It continues to negotiate with banks for the release of further peak working capital facilities, which were due earlier in July. The release of funds was delayed due to procedural issues.

FRL has said that it will make good 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.

However, if this does not happen during the grace period, it will constitute an 'event of default', and Fitch will likely downgrade FRL's IDR and the rating on the bonds further, the agency warned.

FRL's liquidity position remains under severe pressure following the nationwide coronavirus lockdown imposed by the government. Some of the curbs were relaxed in June, which saw a slight pick-up in FRL's sales. However, recent localised outbreaks have led to several states re-imposing restrictions.

Some FRL's stores have remained open, but sell mainly groceries and other essentials that carry lower margins than discretionary items like apparel, rating agency added.

The management could not secure the release of the additional peak working capital facilities to improve cash flows and therefore pay the dollar bond coupon.

While the strategy may be coherent, management's ability to implement it has been hindered by the controlling shareholder's negotiations to obtain equity, pursue divestments with strategic or financial investors. The coronavirus also had impact on the business. This resulted in the downgrade of the IDR and bond ratings, it added.



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