Rating Rationale Brickwork Ratings assigns ‘BWR A+(SO)’ Rating for the Proposed Senior Secured Non-Convertible Debenture issue of ₹ 500 Cr of Bhavna Asset Operators Pvt. Ltd for tenor up to 60 months. Brickwork Ratings (BWR) has assigned the Rating1 of BWR A+(SO) [Pronounced BWR Single A Plus (Structured Obligation)] (Outlook: Stable) to Bhavna Asset Operators Pvt. Ltd.’s (BAOPL or the ‘Company’) Structured NCD of Rs. 500 Cr with tenor up to 60 months. Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. BWR has essentially relied upon the draft term sheet outlining the structure of the deal, audited financial results of the issuer BAOPL as well as Future Retail Ltd (FRL), Future Lifestyle Fashions Ltd (FLFL), with whom BAOPL has entered into Master Lease agreements (MLA). The above rating is based on the credit enhancement in the form of proposed Master Lease agreement to be entered between Bhavna Asset Operators Pvt Ltd (BAOPL), Future Retail Ltd. (FRL), and Future Lifestyle Fashions Ltd (FLFL), wherein BAOPL shall receive guaranteed lease rentals from FRL/FLFL under Master Lease Agreement to be executed between BAOPL, FRL/FLFL. The cash flows of the company is fully guaranteed by FRL/FLFL by way of payment of lease rental. The rating also factors in the unconditional and irrevocable undertaking by Mr. Kishore Biyani, Mr. Vijay Biyani and Mr. Rakesh Biyani assuring the performance by FRL & FLFL of their respective obligations under the MLA and Escrow Agreements. The rating is constrained on account of near unity coverage offered by the minimum fee income for debt repayments. The ability of the promoters to infuse funds to support the debt repayments in case of any shortfall in cash flows remain key rating sensitivity.. Background Bhavna Asset Operators Private Limited (BAOPL) is into operating lease business and has proposed to tie-up with FRL/FLFL for supply of fixed assets on operating lease basis to be installed at upcoming / existing retail stores / formats owned by Future Retail Limited (FRL)/Future Lifestyle Fashions Limited (FLFL). BAOPL shall receive guaranteed lease rentals from FRL/FLFL under Master Lease Agreement to be executed between BAOPL, FRL/FLFL. The cash flows of the company are fully guaranteed by FRL/FLFL by way of payment of lease rental.
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On the basis of this Lease Income over the stipulated term of the Master Lease Agreement, BOAPL to raise funds via private placement of NCDs to eligible investors. The NCD will be utilized toward acquiring assets from Future Retail Limited and Future Lifestyle Fashions Limited which would be given back on lease. The company proposes to acquire Rs 665 Cr of assets from Future Retail Limited and Future Lifestyle Fashions Limited and again leased back them to FRL and FRFL. BOAPL has net worth of Rs.0.01 Cr and does not have any debt on its books as on FY15. FRL is the flagship company of the Future Group (one of India’s largest retailers). Presently, FRL is mainly engaged in home & electronics retailing and into value retailing (earlier a part of FVRL). As of December 31, 2015, FRL had 374 stores encompassing 10.93mn sq. ft. of retail area. In FY15, FRL (Consolidated) reported total income of Rs. 10341.66 crore in FY15 compared to Rs. 11577.44 Cr in FY14 and PAT of Rs. 74.06 Cr in FY15 compared to Rs. 2.81 Cr in FY14. Rating Outlook The assigned rating is primarily a function of total adherence of the issuer to the term sheet shared with Brickwork and enforcement of security within specified time of occurrence of an event of default. The Rating is subject to completion and submission of the following documents to Brickwork Ratings: 1. Executed transaction documents that includes the terms in line with the indicative term sheet provided by the company to Brickwork Ratings 2. Executed Escrow Agreement & Executed Master Lease Agreements 3. Legal opinion on the enforceability of the transaction The given rating majorly captures performance of BOAPL, FRL & FLFL as the NCD structure involves MLA between BAOPL & above stated group companies of future group. Going ahead any changes in the rating of above stated future group entities and ability of the promoters to infuse funds to support the debt repayments in case of any shortfall in cash flows remain key rating sensitivity. Analyst Contact
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Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.
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