In talks for stake sale in subsidiaries like Big Bazaar and Food Bazaar.
Pantaloon, the country’s largest retailer, aims to sell bonds and recast its operational strategy to conserve cash and repay short-term debt, a company official, who declined to be named, has said.
The company’s cash flows have been negative for some time and it has been borrowing to fund expansion.
About Rs 260 crore debt, mostly bridge loans, is due for payment in the next six months. The company can partly meet this with its undrawn term loans of Rs 300 crore and by issuing short-term bonds.
As on June 30, 2008, the company had a debt of Rs 2,767 crore. Its interest outgo for 2009 fiscal is estimated at Rs 200 crore.
The retailer recently managed to enhance from lenders its working capital limit to Rs 2,353 crore. This would help it tide over the operational fund requirements, said the source.
More From This Section
“We have sufficient cash flow to repay the debt and are considering various options to raise funds. We have already repaid a part of the short-term debt and tied up for long-term loans,” said another company executive.
Pantaloon Retail Managing Director Kishore Biyani declined comment on the debt restructuring.
The company’s debt to equity ratio has been rising. The ratio has gone up from 1.17:1 in FY 2007 to 1.21:1 in FY 2008 and is expected to be around 1.40:1 in the current financial year, which ends on June 30 (the company follows the June reporting cycle).
Cash flows from operating activity were negative Rs 19.2 crore in FY 08, compared with a negative Rs 271.9 crore a year earlier.
Additionally, to boost operational efficiency, the retailer is negotiating for better credit terms and prices from vendors and improving the supply chain, including cutting inventories at the stores and introducing new promotional schemes. It is also investing in technology to enhance efficiency.
To chart out long-term financing issues, Pantaloon officials are in talks with various investors to sell stakes in key subsidiaries, including Big Bazaar and Food Bazaar. It plans to invest at least Rs 600 crore in some of its subsidiaries. A part of the funds are expected to be raised from stake sales, according to sources.
Pantaloon has also slowed its expansion plans for FY 2009 to 2.5 million sq ft, compared with 4 million sq ft planned previously, to conserve cash.
“The company is dependent on external capital now, as internally it is not able to generate positive cash flows. If equity comes in, the plans will be back on track,” said a equity analyst with an international brokerage who did not wish to be quoted.
Pantaloon stock closed at Rs 167.90, nearly 3.16 per cent higher than Wednesday’s close.