ICRA has cut rating on debt worth Rs 844 crore of Future Corporate Resources to BB+ from BBB and A4+ from A3+
With rating agency ICRA downgrading debt instruments of Future Corporate Resources Private Limited — an investment holding company of the Future Group — the spotlight is on mutual fund debt exposure to entire Future Group. Amid the coronavirus scare, there has been a substantial increase in the pledged shareholding of the promoter group across its listed companies due to continued decline in share prices. This, along with continued high debt levels of the Future Group (total of all holding companies and operating companies) have compelled ICRA to downgrade its ratings from BBB to BB+, and A3+ to A4+ for Future Corporate Resources. While there is no direct MF debt holding in Future Corporate Resources, but two AMCs together have over Rs 500 crore exposure to three Future Group firms viz. Future Ideas Company, Future Lifestyle Fashions and nuFuture Digital (India). Read on to know more.
On March 20, 2020, Future Corporate Resources Private Limited ratings have been downgraded to [ICRA]BB+(Stable)/[ICRA]A4+. The previous ratings were BBB- and A3+. BBB ratings carry moderate credit risk but BB ratings carry high risk of default regarding timely servicing of financial obligations. Similarly, A3 rated instruments are considered to have moderate degree of safety but A4 rated instruments are considered to have minimal degree of safety regarding timely payment of financial obligations and are susceptible to default.
The revision in ratings reflects the continued high debt levels of the Future Group (total of all holding companies and operating companies) and a substantial increase in the pledged shareholding of the promoter Group across its listed companies (listcos) due to continued decline in share prices. While Future Corporate Resources Private Limited’s (FCRPL) external debt reduced to Rs 1,430 crore (excluding the impact of Ind-AS) as on December 31, 2019 from Rs 2,758 crore (excluding the impact of Ind-AS) as on March 31, 2019, the total debt (including debt from Group companies) remains high. Furthermore, despite monetisation of investments across various Group entities, the total Group debt has increased as on December 31, 2019, as against March 31, 2019, ICRA said.
Future Corporate Resources is primarily an investment holding company of the Future Group, facilitating the funding of Group companies through various investments and lending of loans and advances, as well as providing services to scale up / support the retail businesses of the Group.
The exposure to the Future Group firms is mainly through debentures. Take a look a below at the table.
NuFuture Digital India – This is a Business Services & Shared Services provider focused on retail sectors. It has entered into master services agreements (MSAs) with four Future Group firms, and in return gets monthly service fees.
As on February 29, 2020, four funds have Rs 284.7 crore market value exposure to debt issued by NuFuture Digital India Ltd. The total exposure of Franklin India Credit Risk Fund was Rs 96 crore, or 1.75% of fund assets under management (AUM) to debt maturing June 2, 2020 and September 30, 2022. The total exposure of Franklin India ST Income Plan was Rs 80.1 crore, or 0.79% of AUM, to debt maturing June 2, 2020, September 30, 2020 and September 30, 2021. The total exposure of Franklin India Income Opportunities Fund was Rs 68.4 crore, or 2.33% of AUM, to debt maturing September 30, 2023.
The total exposure of Franklin India Dynamic Accrual Fund was Rs 40.2 crore, or 1.08% of AUM, to debt maturing June 2, 2020 and September 30, 2023.
Future Ideas Company – This is the ideation arm of Future Group which provides research, insights and solutions for various initiatives and activities of the group relating to brands, market, consumer and product. The main clients are three listed entities of Future Group. It has has entered into separate “Master Lease Agreements (MLA)” with clients and gets quarterly royalty fees (subject to minimum guaranteed payment every quarter).
As on February 29, 2020, four funds have Rs 128 crore market value exposure to debt issued by Future Ideas Company. The total exposure of Franklin India ST Income Plan was Rs 57.7 crore, or 0.57% of AUM, to debt maturing October 31, 2020, October 31, 2021 and October 31, 2022. The total exposure of Franklin India Income Opportunities Fund was Rs 40.2 crore, or 1.37% of AUM, to debt maturing September 30, 2023. Franklin India Credit Risk Fund and Franklin India Dynamic Accrual Fund have less than Rs 20 crore (or 0.4% AUM) exposure.
Future Lifestyle Fashions – This is listed public limited company with a market cap of Rs 3,700 crore. The listed shares have crashed over 60% from 52-week high. The company is primarily engaged in the business of retail fashion and houses various brands like Central, Brand Factory, Plant Sports and over 30 other domestic and global fashion brands.
The exposure of Kotak Credit Risk Fund to Future Lifestyle Fashions stood at Rs 98.2 crore as on February 29, 2020. That is 1.86% of fund AUM. The debt matures November 9, 2022.
As on March 20, the downgrades have not translated to any overall negative NAV impact on the four Franklin AMC funds or to the Kotak Credit Risk Fund.
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