Fitch Ratings has downgraded Future Retail Ltd’s (FRL’s) long-term issuer default rating to ‘restricted default’ from ‘distressed’ following the company’s announcement that it has completed the restructuring of the bulk of its onshore debt.
Fitch said it views the move as a distressed debt exchange (DDE). At the same time, it affirmed the rating on FRL’s USD500 million 5.6 per cent senior secured notes due 2025 at ”distressed’ with a recovery rating of ‘RR5.’
The DDE provides relief on debt servicing requirements until September 30 but the resultant debt structure and maturity profile remain unsustainable.
Therefore, Fitch regarded the relief as another temporary measure following the relief provided under the Reserve Bank of India‘s pandemic-related schemes last year.
“The restructuring does not meaningfully address FRL’s financial stress, which we regard as essential for an upgrade after the completion of the DDE.” Fitch said the resurgence of coronavirus in India and FRL’s poor access to credit will make it difficult for the company to meet the interest payments on debt that was not part of the restructuring, particularly the US-dollar notes.
The company will also need to rely on alternative sources such as new equity partners and disposals to meet its large debt repayments after September as agreed in the restructuring plan.
“We believe the risk of another, potentially deeper, debt restructuring will rise significantly if the proposed sale of FRL’s business to an indirect subsidiary of Reliance Industries Ltd is not completed.