“Cash & Carry Trading (P) Ltd” –another company founded by R Subramanian– has filed an appeal before the wider bench of Madras High Court to allow it to arrive at an agreement with the creditors of Subhiksha Trading as the first petition seeking the same was earlier set aside by a single judge bench of the High Court, when his lordship allowed admission of the creditors’ petitions seeking dissolution of Subhiksha Trading.   The appeal is expected to come up for hearing before the Court in the next month (October, 2009).

Subhiksha owes around Rs 900 crore to a cross section of creditors comprising financiers, vendors, service providers, property owners, and employees, among others. A major part of this outstanding amount (around Rs 750 crore), has been lent by a consortium of 13 banks led by ICICI Bank Limited. Incidentally, ICICI Bank, through its venture capital arm I-Venture, also owns around 23 per cent of equity stake in Subhiksha Trading.

The lending banks (barring Kotak Mahindra Bank) had earlier worked out a financial package to revive operations of the beleaguered retailer. The financial assistance of Rs 300 crore was sought by the retailer under Corporate Debt Restructuring (CDR) scheme of the RBI. However, despite working out broad contours of the agreement, the revival package could not be inked as the retailer, among others, failed to provide timely information on the company’s financial position.

Kotak Mahindra did not join the revival effort alongwith other lenders in the consortium as it had filed a petition for dissolution of the company. The pending petitions of Kotak and other creditors for dissolution of the company are listed for hearing in the High Court on the 5th October, 2009.

Apart from lenders and creditors, Zash Investments– an Azim Premji owned PE firm– owning 10 per cent of the equity in Subhiksha Trading is also opposed to the compromise mooted by Cash & Carry.

Both Cash & Carry and Subhiksha Trading have been founded, promoted, and managed by R Subramanian, his family, and associates.

While, the air time retailing plan is expected to be unveiled sometime in early 2010, the group is planning for an annual revenue of Rs 1,000 crore from this business. This revenue stream will form an important part of Future group’s grand plan of achieving retailing turnover of Rs 25,000 crore in the next 4 years.

Talking about advantages of airtime business, Biyani, who was talking on sidelines of the India Retail Forum conference at Mumbai, said that while this business did not require any specific retail format, it provided much longer shelf life.

Future group is believed to have already initiated talks for purchase of bulk airtime with the country’s major telecom players including the sixth largest Tata Communication, which offers mobile dual technology (GSM and CDMA) services across the country.

Future group’s flagship retailing arm Pantaloon Retail (India) is incidentally already having a 50:50 joint venture in place with the UAE’s Axiom Telecom LLC to retail mobile phones, accessories, and services. The joint venture formed two years ago in July, 2007, was apart from developing backend sourcing infrastructure for the Pantaloon’s existing telecom retailing business, was set up to “exponentially” expand and scale up the telecom business of the group.

Axiom– the leading distributor, retailer and after sales support provider of mobile phones, phone accessories, wireless gadgets, memory and storage devices in the Middle East– is expected to create a nationwide network of state-of-the-art after sales service centers for mobile handsets in the country. The joint venture is planning to set up 1,500 specialty outlets across the country in the next 24 months.

After signing the joint venture agreement with Axiom in 2007, Kishore Biyani had said: “The current explosion of the telecom retail market that we are witnessing is breaking new barriers every day. There is no doubt that mobiles will soon be the single largest electronic products retailed in the country. Future Group, with the knowledge and expertise of Axiom Telecom’s systems and process in this area, will be best positioned to retail and service the Indian telecom market.”

In another blow of sorts to the retailer, the court has also allowed Kotak Mahindra Bank to seek objections, if any, from Subhiksha’s stakeholders for winding up of its operations. The bank, which was a part of consortium of 13 lending banks led by ICICI Bank, has been allowed to invite objections of the stakeholders by publishing advertisements in national dailies in English and Tamil for this purpose.

The latest orders of Justice P Jyothimani of the Madras High Court are seen as beginning of the end of a retailer, which in the heydays of retail boom just a few months ago, was presented as a role model of growth in the retail sector.

Subhiksha was, however, forced to suspend operations of its retail chain in January, 2009, as it could not arrange cash for operations of 1,600-odd stores most of which sold food & grocery across the country at discounted rates.

Subhiksha, according to financial position submitted to the court for 31st March, 2008, was owing Rs 928 crore against liabilities and provisions, while carrying a cash balance of Rs 18 crore.

As per Scheme of Arrangement submitted by Cash & Carry, the retailer wanted to settle the secured outstandings as in October 2008 at 50 per cent of the principal amount and payment of balance over a period of 10 years.

Apart from Kotak Mahindra, the retailer is also facing several court cases for recovery of dues from erstwhile creditors including vendors, service providers, employees, and property owners, among others.

Undetered by adverse decisions of the court, R Subramanian, promoter, founder, and managing director of Subhiksha Trading is confident of reviving the operations of Subhiksha. In a statement, he says, “The company is confident that the order admitting the winding up petitions for hearing by the (Honorable) Court has no bearing whatsoever on its revival plans.”

Subramanian is likely to appeal against the court’s orders, once copies of the judgment are received by the company.

While, the Delhi-based home goods, value, retailer, which currently operates around 170 large format (mega) stores across the country, has closed some 12 non- performing stores and removed around 6,000 employees in the past few months to come out of its financial woes, it’s going to be a long and arduous journey for the company to restore confidence of its stakeholders including lenders, employees, vendors, and investors, among others.

According to a Live Mint report, the cash strapped retailer, which carries a debt burden of around Rs 730 crore, has now begun to even offer the company’s equity shares in lieu of outstanding payments to its vendors.

While, asserting that “nothing of this sort is happening” the company Chairman has, however, conceded to the newspaper “… If any supplier is interested in having stake in the company while having faith in its future, then we would welcome them to be our stakeholders as this will bring in more sense of belongingness, which will only benefit us in the long run.”

Agreeing that “cash flow is under stress” Agrawal has also confirmed that “the worst is not over yet.” According to him, “The company is gradually moving towards normalcy and lot more is being done before we say that the worst is over.”

Despite several measures undertaken by the company to stem the rot, including freeze on further expansion, situation continues to remain grim. “In the present situation, very few suppliers will give credit to the company,” said an erstwhile apparel vendor of the company.

Vishal Retail, it may be recalled, was once a darling of equity investors. They had lapped up the company’s Rs 10 equity shares at a premium of Rs 270 each in the IPO during the boom days for retail sector in July 2007. The IPO was oversubscribed 81 times. The equity share, which once touched the dizzy heights of Rs 1001, is currently selling at around Rs 60 each.

The statement of ICICI Bank assumes significance as it has come subsequent to filing of a ’scheme of arrangements’ under Section 391 of the Companies Act. Subhiksha wants the consortium of all its 13 lending banks led by the ICICI Bank to take a 50% hit on the amounts the retailer owes to its lenders. Subhiksha, according to the scheme of arrangements, is said to be agreeable to put in Rs 250 crore in operations of the company.

If the Court accedes to the Bank’s lates submission, it may become extremely difficult to revamp the working of the retail chain. The lending banks have already provided for most of their dues against the company in their books.

The retailer, it may be recalled, for last over six months, has been pinning its hopes on receiving Rs 300 crore in financial assistance from the consortium of lending banks to partly revive its operations. ICICI Bank is apart from being a lead bank in the consortium of lenders is also part holder of equity (23 per cent) stake in the company through its private equity arm I-Venture.

The financially troubled retailer, it may be recalled, was forced to shut down operations of all its 1600-plus stores across the country from January, 2009. Much of the Rs 870 crore received in debt from a consortium of 13 banks is believed to have gone in funding expansion of the company during 2008.

Subhiksha Trading Services Limited, the company which owns the now defunct retail chain, was founded and promoted by R Subrahamanyam, a local banker turned retailer. Apart from banks, the retail chain is also owing large sums of money to vendors, service providers, property owners, and workers, among others.

The position in this regard became clear when employees of the company despite followup could not receive Form 16 from their employer. This has forced the employees to abstain from filing their tax returns with the tax administration.

At one point of time, 15,000 persons were under direct or indirect employment of Subhiksha. Most of these, however, working at front end on low salaries may not have been liable for payment of taxes. The company is estimated to be owing about Rs 35 crore in unpaid salaries and other dues to its employees.

The company in a mailed response, however, has denied any liabity on this account. “We have no dues in respect of TDS in any manner, in respect of any employee,” said R Subramaniam, Subhiksha’s managing director to the newspaper.

The act of deducting tax and not remitting it to the government is an offense for which the company’s management is liable be prosecuted. Those responsible for not depositing the money, without valid reasons, may have to face imprisonment of between 3 and 7 years. The company may also be penalised for failing to issue the TDS certificates to its employees.

Subhiksha, it may be recalled, was forced to close down its discount retail chain comprising 1,600-odd convenience format stores operating across various states of the country. The stores were closed over 6 months ago in January, 2009, due to severe cash crunch.

Subhiksha Trading owes around Rs 1,000 crore to various creditors including Rs 870 crore to a consortium of 13 banks led by ICICI Bank Limited. The company failed to obtain bailout assistance of Rs 300 crore from its lenders under RBI’s CDR (corporate debt restructuring) programme as dedline for sanction of the revival package lapsed aon 31st July, 2009.

The ICICI Bank, which together with other litigants including ICICI Venture, HCL Infosystems, Azim Premji-owned Zash Investment and Kotak Mahindra Bank, is opposed to the company’s proposed merger with Chennai-based Blue Green Construction and Investments Limited, is also opposed to the proposal of compromise mooted for restarting operations of the suspended retail chain. The proposal was mooted by Subhiksha’ subsidiary ‘Cash and Carry.’

ICICI Bank has told the court that the retail chain for its revival should not depend on the outcome of its application for corporate debt restructuring (CDR). The last date for proposed bailout assistance of Rs 300 crore sought by the retailer, as reported earlier, has already lapsed on the 31st July, 2009. There are unconfirmed reports, though, that lenders may seek extension of the missed date in future.

The counsel for various litigants have also sought an investigation into the affairs of the company, which was founded and promoted by its managing director R Subrahmanyam.

During the hearing of the case, ICICI Bank also informed the court that while Subhiksha owes Rs 870 crore to the banks, an amount of about Rs 107 crore is due to unsecured creditors. These unsecured creditors, among others, include vendors, service providers, property owners, and employees of the company.

Referring to an amount of Rs 250 crore under the head of ‘reserves’ in the company’s books, the lead bank told the court that “none of us know where it went.” The company has also lent amounts worth Rs 119 crore as loans and advances, however, the identity of their receipients, according to the ICICI bank counsel, is “unclear.”

Apart from experiencing falling footfalls and declining basket size (average invoice value) due to global slowdown, the highly leveraged retail chain was facing the problems of high interest cost and paying heavy payroll expenses.

On both the counts, the company, according to a BS report, appears to have succeeded. Vishal has been able to bring down the number of employees by a whopping 45 per cent from nearly 16,000 a year ago to 8,500 now. The company has also been able to address the problem of high interest cost by bringing it down from Rs 10 crore a month earlier to Rs 7.25 crore a month now. The interest cost has mostly come down due to negotiaon of interest rates with the lenders. Against a high rate of 15 per cent per annum the rate has now come down to 9.75 per cent. What is most worrying, however, is the fact that the company continues to carry a high debt burden of Rs 730 crore at an extremely debt/ equity ratio of 1.7.

“We have told the bankers that ours is a profit-making business model. All we need is some leniency in the rate of interest, so that we could make a comeback,” said Ambeek Khemka, group president.

Unless the company resorts to further dilution of some of its investments in assets, or inducts fresh equity capital in the system, it will be extremely difficult for the retailer to improve upon its leveraged position.

One of the major reasons for highly leveraged position of Vishal Retail could be attributed to the policy of going in for ‘unbridled expansion’ of its retail network. At one point of time, the number of its stores had crossed 184 while the space occupied by these stores had almost touched three million sq ft.

Most of the Vishal’s expansion like many other fast growing retailers (like Subhiksha) was funded via short term funds in the hope that fresh infusion of capital will help replace these high cost, low maturity funds.

The sudden plummeting of equity markets, however, led to a situation in which there was a sudden evaporation of capital from the markets. Even the plan for dilution of promoters’ equity stake could not fructify as most of the potential buyers themselves were struggling for raising funds and at the same time pruning their own operations.

“Excess short-term debt, coupled with plans of equity fund raising falling apart owing to poor market sentiments, led to sub-optimum capital mix and increased interest burden,” said Khemka.

Vishal Retail, which has now begun to clock over Rs 100 crore in monthly sales, is looking at closing down 20-odd stores to further rationalise its business. It is also looking at optimising employee expenses by cutting down on travel and communication allowances, particularly that of the top management, including the president.

“We are looking at increasing our per-employee productivity and this is one step in that direction,” Khemka added.

Cash and Carry Wholesale, a shareholder of Subhiksha, has  filed a court petition under Section 391 of the Companies Act, that seeks to arrive at a compromise between Chennai-based cash starved retailer company and its creditors.

“We have been informed and notified that Cash and Carry Wholesale Traders Pvt Ltd, the promoter of Blue Green Construction and Investment Ltd, into which we are merging has filed a Section 391 petition before the High Court,” said R Subramanian, Subhiksha Trading Services Ltd’s promoter, founder, and managing director in statement.

A company and its creditors can meet and arrive at a consensus on any matter under the provisions of section 391 of the Indian Companies Act, provided such a meeting has been held under the orders of a competent court.

Subhiksha it may be recalled was forced to suspend operations of over 1,600 convenience stores discount chain in January, 2009, as it ran out of cash to meet obligations of its lenders that among others included banks, vendors, service providers, property owners and employees. Subhiksha is believed to be owing about Rs 800 crore to a consortium of 13 banks, including Kotak Bank (Rs 40 crore) which has petitioned the Madras High Court to wind up the operations of the cash strapped company.

To revamp its suspended operations, albeit on a small scale, Subhiksha sought assistance of Rs 300 crore from its lenders under RBI’s CDR scheme. However, despite agreeing in principle to arrange induction of Rs 250 crore, the retailer failed to obtain approval of its lenders to its proposal within the stipulated time period of six months (up to 31st July, 2009).

Subhiksha, according to the statement, however, is still hopeful of resuming its activities in the next 3 to 4 months as its management is working with lenders on restructuring the troubled firm.

The new HyperCITY outlet spread over 100,000 sq ft of trading space located in InOrbit Mall boasts of wide aisles and 20 checkout counters. The store was launched on Friday, the 31st July, 2009.

“We are delighted to launch HyperCITY in Hyderabad. It is our first store in in the city and we are confident that HyperCITY will prove popular with shoppers. We have seen immense potential in this city and therefore believe it to be the perfect market to establish our store. HyperCITY will provide shoppers a truly international shopping experience, where customers can shop in comfort in a large, modern and exciting environment,” said B S Nagesh, vice-chairman, Hypercity Retail (I) Pvt Ltd, on the occasion.

“We expect revenues of Rs 1,000 crore by the next year once four more stores are commissioned by June 2010,” added Nagesh. Offering details of present operations of the retail chain Nagesh said, “the Malad (Mumbai) store alone had registered revenues of Rs 175 crore, the Vashi store Rs 90 crore and Jaipur store close to Rs 75 crore. With Hyderabad, we are confident of doing about Rs 100-crore business.”

Speaking about expansion plans, Nagesh said, “While the economic downturn has affected retailers in the country, we have not swayed away from the ongoing expansion plans. Four properties are at the advanced stage of being inaugurated. The first off the block will be one at Amritsar, followed by another one at Mumbai with Bangalore and Pune next in line,” he said. The company is expected to achieve break-even after the opening of its seventh store at Bangalore.

The HyperCity Hyderabad like its counterparts in Mumbai and Jaipur offers a wide array of over 44,000 products under fresh, food and grocery, home entertainment, technical appliances, furniture, sports, toys, fashion accessories and footwear categories. These products are being sourced from vendors located in India and abroad. HyperCITY is also looking at setting up laundry, pharmacy, bakery, ATM, and other services at the mall.

InOrbit Mall is a real-estate venture of Mumbai-based construction major K Raheja group, which owns HyperCity Retail India. The retailing company is also partly owned by leading department store format retailer Shoppers Stop.

Speaking on the occasion, B S Nagesh, said that the group is looking at opening 10 such hypermarket format stores across India by 2011. Each new store will entail an investment outlay of Rs 30 crore each.

The cash strapped retailer had asked for sanction of Rs 300 crore together with moratorium (postponement of repayment) on existing loans and several other financial concessions like waiver and reduction of interest to restart its operations, albeit on a truncated scale.

12 of the original 13 lenders, except Kotak Bank, who have to recover around Rs 850 crore from Subhiksha are participating in the CDR process. Kotak has excused itself from this process as it has filed a winding up petion against the retailer in the Madras High Court as its to recover Rs 40 crore from the company.

All the lending banks who are not much hopeful of recovering the money due to them have already made heavy provisioning against the due amont as prospects of recovering the outstanding amount, unless the revival package is approved, are becoming difficult every day. Subhiksha may be asked to infuse Rs 250 crore in the operations as a part of revival package.

R Subrahamanyam, Subhiksha’s founder, promoter, and managing director, according to media reports is expected to make an announcement this week in this regard.

As reported earlier, the group of 12 lenders led by ICICI Bank may ask for time extension of one to two months to complete the process. The extension if granted will be first of its kind under the CDR programme. Interestingly, this is also the first non-industial case of revival that is beng considered under the process.

Subhiksha had to suspend operations of all its 1,600-plus stores for want of liquidity. Apart from Banks, Subhiksha owes money to employees, vendors, service providers, and property owners, among others.

The last date for disposal of the proposal under the rules framed for CDR will come to end in the next three days on the 31st July, 2009.

It now appears from media reports that it may afterall be not possible for the banks to complete the sanction process before the due date.

Accordingly, the banks have asked the concerned authorities to extend the time limit by additional two months (up to the end of September, 2009).

According to some bank officials quoted in the report, “it now depends on the CDR (office).” It may be intersting to note here that if the extension is agreed upon by the authorities concerned, it will be first such extension under the CDR programme.

The case of Subhiksha for consideration under CDR package is also unique as the process is basicall meant for reviving industrial companies, while Subhiksha, which operated a retail chain of over 1,600 discount stores mainly under value segment is a trading company.

While, bankers like ICICI Bank (lead bank) together with HDFC, Yes, Stanchart, and HSBC Banks, among others, are processing the revival package that seeks to obtain Rs 300 crore for revamping operations of the chain whose all the stores were closed around January, this year, Kotak Mahindra Bank, another erstwhile consortium member, has refused to be part of the process.

Kotak Bank incidentally has filed a petition in the Madras High Court seeking winding up of the beleaguered company. Kotak has to recover around Rs 40 crore from the cash strapped retailer. Apart from Kotak, Subhiksha is also fighting many legal battles against cases for recovery of dues filed by vendors, service providers, property owners, and employees, among others.

R Subrahamanyam, company’s founder and managing director, has refused to comment on the delay. He together with his friends relatives and associates owns 59 per cent stake in the company’s equity, while I-Ventur and Zash Investment (PE arms respectively of ICICI and Azim Premji) own 23 and 10 per cent equty stakes of the company.

Subhiksha, which operated a discount chain of 1,600-odd mainly food and grocery stores across the country, until January this year, it may be recalled, had approached its financial lenders to whom the chain owes more than Rs 500 crore to work out a package under RBI’s CDR (Corporate Debt Restructuring) programme.

One of the reasons for delay in finalising the package is said to be the non-availibility of financial accounts of the company for the 15-months perid ended 30th June, 2009. The lending banks had appointed the global accountancy firm E&Y to help prepare the accounts.

The consortium of lending banks led by ICICI Bank, according to sources, are willing to offer maritorium on payments and restructuring of capital subject to appointment of an advisory board, a chief financial officer (CFO), corporate governance committee. While, the advisory board is expected to keep tab on operations, the CFO is expected to manage the finances. The governance committee is likely to exercise superintendence and control over company’s policies and operations.

R Subrahmanyam, founder and managing director of the company, is said to be the favourite of the lenders to manage the company’s operations in his present position, on day to day basis. Continuation of Subrahmanyam, who founded and run the company since its inception, is favoured because he is the best person who knows problems and potential of the company.

R Subramanian is believed to have committed to arrange for the additional funds required for revamping the operationds of the company. To begin with the company may restart the operations with 500-odd stores.

Meanwhile, Minister of Company Affairs informed the Loksabha yesterday that the company had not paid salary for three months and closed all units without any communication. The statement of the minister was based on the complaint received from Anil Kumar- an ex employee of the company. Subhiksha is also batteling several legal petition in the Madras High Court challenging its proposed merger with a local company and seeking winding up of the company as it has failed to make outstanding payments against supplies, services, and salaries.

I_ Venture (private investment arm of ICICI) and Azim Premji’s Zash Investment are minority equity holder holding 23 and 10 per cent of the equity in the company. Promoters led by R Subrahmanyam own around 59 per cent of the stake in the company.

The new IT brandshop is a conceptually different distribution model as Samsung India, which so far has focused on targeting consumers through channels and to some extent through government sales, has for the first time gone in for its own exclusive retail store.

The new ‘IT brandshop’ store located at Arihant Arcade, Ameerpet in Hyderabad will to showcase Samsung’s entire range of IT and consumer products, including, notebooks, netbooks, monitors, printers, consumables, digital cameras, digital camcorders, MP3 players and mobile phones. The shop will also offer IT accessories like laptop bags, headphones etc.

“Retail is a big thrust area for us as we are looking at enhancing our consumer interface this year. The IT Brand Shop will represent a one-stop shop for all Samsung IT products, ranging from notebooks to printers. In the coming months, we plan to set up IT Brand Shops in the other metros as well,” said JungSoo Shin, president and CEO, Samsung South West Asia, who inaugurated the store along with Ranjit Yadav, director, IT, Samsung India, in the presence of other Samsung representatives, dealers and customers.

The new Samsung ‘IT Brand Shop’ store has also created an ‘Experience Zone.’ This zone showcases commonly used applications like music, gaming, movie and imaging. Other digital products have been also integrated into this Demo zone to showcase convergence of digital devices.

Even as Subhiksha, the Chennai-based cash strapped, food and grocery, discount retail chain, battles hard in the Madras High Court, to defend legal cases filed by some of its stake-holders, its founder, promoter, and managing director R Subrahmanian is confident of completing the process of obtaining financial bailout package from its lenders.

The financial package is being processed under the CDR programme of Reserve Bank by 12 of the 13 consortium members led by ICICI Bank. The dedline for finalising the process under the scheme will come to an end by 31st July, 2009. While, one of the consortium members Kotak Mahindra Bank has withdrawn from the process, six of the remaining 12 consortium members are ready to participate in the CDR. The remaining six members, though, are said to be also participating in the revival process.

“Twelve of the 13 bank lenders together with the three major shareholders are thrashing out the contours of the debt restructuring as well as the funds infusion into the company to revive operations. The contours of the revival plan of the company have been agreed (upon),” said R Subramanian in a statement.

“The deadline for closure of CDR is July 31, 2009, and the company is confident that the process will be completed well before that date,” added Sbrahmanian.

While, Kotak Mahindra Bank having filed a winding up petition against the company has withdrawn from the CDR process, “…all the other 12 banks, including the six banks that are part of the CDR and the other six which are not part of CDR, have all been working together on the revival package,” said Subrahmanian.

Subhiksha, according media report, is also believed to have filed a counter petition against Kotak Mahindra Bank in the Madras High Court.

According to Subrahmanian, various stakeholders of Subhiksha are agreeable to finance the revival mainly through equity. Subhiksha, it may be recalled, before suspension of operations of 1,600-odd stores across the country had asked for a debt restructuring of Rs 300 crore. Subhiksha is believed to be owing slightly more than Rs 550 crore to banks, while overall liability to employees, vendors, property owners, and service providers, among others, may be in excess of Rs 750 crore.

According to reports, ICICI Bank has an exposure of over Rs 180 crore, while HDFC Bank has the exposure of around Rs 150 crore. Bank of India, Federal Bank and Yes Bank have exposures of Rs 50 crore each, while Bank of Baroda may be carrying debt of Rs 75 crore in its books.