Subhiksha Trading Services, a food and grocery chain, said it plans to raise debt to run its existing operations and expand business amid speculation of troubled times.
The Chennai-based retail chain’s decision to raise funds comes amid reports of defaults on payments to suppliers and also failure to pay salaries to employees, which Subhiksha has denied. The company also denied speculation of disengaging contract employees.
The retailer plans to raise Rs 300 crore in 2009 for “funding the debt component of expansion as well as incremental working capital needs,’’ said N Subramaniam, managing director, Subhiksha. “With interest rates falling, debt remains the sanest option at this stage especially with liquidity in the banking system easing, this looks the way forward,’’ he said.
The company, partly owned by IT mogul Azim Premji, had earlier indicated that it plans to relocate at least 10 per cent of its stores as demand slows and high rentals erode its margin.
The company is expected to fall 10-12 per cent short of its planned expansion target for the quarter ending December. Chennai-based Subhiksha operates about 1,650 stores across the country and plans to open another 3,000 by the end of 2010.
The plan to raise debt comes amid crashing stock markets, stalling the company’s plan to raise cash through offering of stocks. Subhiksha had earlier said it plans to raise Rs 400-500 crore from sale of equity. ICICI Ventures holds 24 per cent in the company.
“The current market is not greatly conducive for equity,’’ said Subramaniam.
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Subhiksha may access bank loans and also rely on bill discounting to raise the required funds for its incremental working capital requirement.
“As a retail player, options like external commercial borrowings, foreign currency convertible bonds (FCCBs) are not on as foreign direct investment is barred in retail,’’ he said without sharing plans of relisting the company.
In June, Subhiksha bought a Chennai-based non-banking finance company, Blue Green Constructions and Investments, listed on the Madras Stock Exchange (MSE), for Rs 2 crore. The retailer plans to merge Blue Green with itself and the merged entity will be called Subhiksha Limited, which may be listed by March 2009.
“Our merger plans are on track,’’ said Subramaniam without giving more details.
The merger process was expected to be completed by December, according to Subhiksha’s original plan.
Commenting on the company’s ongoing tussle with suppliers over non-payment of dues, a Subhiksha spokesperson said, “Payments are made in normal course except in cases where payments may have been held up due to pilferage issues pointed out by the audit teams.’’
Still, the retailer offered to opt for a conciliatory approach towards resolving issues with large suppliers. “We deal with suppliers on a partnership model. In times like this when demand is slowing for many of them, we do not see either of us working on a confrontational model,’’ the spokesperson said. “We have good cordial relationships with all vendors who matter,’’ he said.