Future Group will sell more businesses in a desperate bid to rein in runaway debt levels, say observers.
Future Group will sell more businesses in a desperate bid to rein in runaway debt levels, say observers.
At the beginning of April, the group had debt pile of around `9,000 crore.
By the end of that month, it had sold flagship apparel format Pantaloons to Aditya Birla Nuvo, a move that would wipe off `1,600 crore debt from the books of Pantaloon Retail.
And on Monday, it said it will sell a 40% stake in non-banking finance company Future Capital Holdings to US-based private equity firm Warburg Pincus for Rs425 crore.
Warburg’s stake in the entity will rise to 53.67% post an open offer, taking its total deal size to `550-560 crore. Additionally, Warburg will invest `100 crore in Future Capital.
Pantaloon Retail and Biyani collectively hold a 56.3% stake in Future Capital.
V Vaidyanathan, vice chairman and managing director, who owns a 7% stake in the company, will continue to head the company, the company said.
“The deal would reduce debt of consolidated entity by `3,600 crore (debt in the books of Future Capital),” Abneesh Roy, associate director - institutional equities - research at Edelweiss Securities, wrote in a note to clients.
“Also, the consideration received from this transaction will be utilised to reduce core retail debt,” he noted.
To be sure, during the quarter ended March, Pantaloon paid over 90% of its earnings before interest and tax as interest expense in its core retail business, causing profit to decline 76.2% year on year.
The group aims to be debt-free by the end of this fiscal.
That means plenty more deals are on the way, say observers.
Even factoring Monday’s deal, the group would have to reckon with over Rs3,500 crore debt on the books of its entities.
Pantaloon Retail will also likely sell its stake in Staples Future Office Products, its joint venture with Staples Inc, by June 30 for `200 crore and in its insurance joint ventures with Italy’s Generali Group by December for around Rs1,000 crore, NewsWire18 reported on Monday, quoting a company official.
A company source said the group is in talks with Piramal Healthcare, Dewan Housing and some public sector banks for selling a 74% stake each in the life and non-life JVs.
“Nothing is concrete yet. Talks are on to find an appropriate partner. As the investment outlook is highly negative, it has been a little difficult for us to find a partner.”
It also wants to sell stake in retail businesses like home and electronics where it has the HomeTown and eZone formats and in some joint ventures under listed entity Future Ventures.
Sources said Pantaloon Retail’s business model was partly to blame for the huge debt it has amassed. According to them, the company was readying its food and grocery retail formats Big Bazaar and Food Bazaar to be controlled by a foreign retail giant like Carrefour in anticipation of foreign direct investment being allowed in multi-brand retail.
When Big Bazaar, Food Bazaar and KB’s Fair Price were hived off into a separate company, Future Value Retail, Biyani had appointed joint-CEOs to run the business in a clean fashion.
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