Vishal Retail to sell off its core retail businesses

Vishal Retail, which has been posting operating losses over the past six quarters following the poor show by its retail venture, yesterday came out with a proposal to sell its core retail business to the Shriram Group and the wholesale business to TPG, a global PE investor. This would include in toto the underlying assets and certain liabilities pertaining to the businesses.

The Delhi-based company's latest move should not come as a surprise given the difficult times it is passing through over the past two years. However analysts say it would be difficult to figure out what exactly shareholders stand to gain given Vishal Retail remains tight-lipped about the deal structures under the two transactions.

Vishal Retail has expanded its business using debt-heavy capital structure but with the domestic retail sector facing a tough time due to the economic slowdown in 2008-09, consumer spending was far from what was expected. Not surprisingly therefore Vihsal's earnings fell over the subsequent quarters and it now faces liquidity issues. Earlier, the company had planned several corrective measures including shutting down its loss making stores, warehouses and manufacturing facilities.

It had also slashed its workforce over the past few quarters, so the latest deal probably comes as the last resort measure by the company. Media reports say the company has been trying hard to find a strategic buyer for the past couple of months.

According to the management, the proposed sale transaction would reduce a portion of debt from the balance sheet and additionally it would receive an upfront payment of Rs75 crore and another Rs25 crore in the form of bonds with yield maturity of 7.5 per cent redeemable in five years.

With the cash, the company would be able to clear debts from certain creditors, who have initiated winding up proceedings against the company.