Pantaloon’s fund raising could help it cut massive debt

The latest in a series of moves, Pantaloon Retail (PRIL) concluded its qualified institutional placement on Monday, raising Rs 500 crore in the process. This comes after the company raised Rs 276.3 crore through issues to private parties besides the potential Rs 91.50 crore that could come through warrant conversions. Equity raised could trim the company’s massive debt of Rs 2,850 crore taken on for expansion, and help distance PRIL from the problems plaguing smaller retailers such as Vishal Retail. It could also help bring down interest costs. It needs mention that interest costs cut operating margins by half to 5 per cent in FY-09.

Besides retiring debt, funds could also be used for store expansion; PRIL is targeting 25 million sq ft by 2013, from the current figure of about 9.7 million. It hopes to close FY10 with about 12.7 million sq ft.

Besides the QIP, PRIL also has restructuring plans, which may establish its presence as a retail player and help raise funds to support retail activities. Retail formats Big Bazaar, Pantaloon, Central and others, accounting for the bulk of revenues and profits, will be grouped under a single vertical as wholly-owned subsidiaries.

PRIL could find it easier to raise funds for its pure retail businesses, since investor returns will not suffer from losses stemming from unrelated businesses such as Future Media and Future Knowledge. Its value retail business, which includes Big Bazaar and Food Bazaar, contributes about 72 per cent to revenues and has seen robust growth. Value retail will be transferred to wholly-owned subsidiary; the entity could be listed separately besides raising funds raised directly in this subsidiary.

Unrelated businesses such as Future Knowledge Services, Future Learning and Development and so on have been transferred to a promoter group company for Rs 190 crore, further positives for PRIL shareholders. These entities were a drag on profits, with PRIL ending FY09 with an adjusted consolidated net profit of Rs 15 crore against the Rs 143 crore standalone figures.

Financial services interests Future Capital and insurance businesses will together form a vertical. PRIL may reduce holding in Future Capital, and create a new entity with the insurance business and thus unlock value in the financial services division. However, PRIL is not yet clear on how its shareholders will be compensated for the transfers and dilution of stakes in the financial services entities, potential transfers in the retail entities.