Bond investors, who hold a minority share of Future Group’s total debt of 21,000 crore, may be more willing than banks to take legal action for missed coupon payments after the Supreme Court order. Friday blocked a vital deal with Reliance Retail. The banks, while uncertain of the prospects of recovering most of the 21,000 crore of debt they hold, are more wary as some believe the payment could be lower thanks to the insolvency mechanism.
The Supreme Court ruling last week upheld the Singapore Arbitration Court’s emergency order that suspended the proposed sale of Future Group to Reliance Retail over alleged violations of the terms of a prior investment US retailer Amazon’s 1,431 crore in Future Coupons.
Local and foreign banks – including 28 in the lead – relied on the buyout of Future Group by Reliance Retail to collect their contributions. “It all depended on this deal and now that it’s delayed we don’t really know how and when we’ll get our money back,” said a banker involved in the retail group’s debt restructuring. “Forget about the repayment, even the restructuring plan that was approved earlier this year faces questions.”
The Future Group did not respond to the request sent by mail by ET on its debt commitments. Amazon and Reliance Retail executives could not immediately be reached for comment.
In April, the KV Kamath committee set up by the Reserve Bank of India (RBI) approved a proposal from the lenders to restructure loans to Future Retail and Future Enterprises, the main units of the group led by Kishore Biyani. Bank of India is the main lender among the 28 local and foreign financiers who initiated the loan overhaul plan.
Under the deal, Future Group had pledged to pay banks ₹ 6,900 crore in two installments by the end of FY22, mainly by selling its small-format stores. This would allow lenders to convert short-term loans, non-convertible debentures and overdue working capital loans into term loans, which had to be repaid within two years. The group has not yet identified buyers for these stores.
True, the bankers had agreed to the deal as a temporary arrangement in the hopes that the takeover of Reliance would be completed soon, meaning lenders would no longer depend on Future to make the payments.
With this latest court order, all of those plans will have to be reconsidered. “To be honest, there is no future for Future Group without Reliance. The group has very little real estate or assets that can be sold, ”said the banker cited above. “All of their assets are in the form of inventories and very hard-to-collect debts. The Reliance-led plan is the best option right now because even if we go to bankruptcy courts, the payback will be very low. ”
Future Retail is the group’s biggest debtor, with around 10,000 crore in membership fees. Two other listed companies – Future Enterprises which owns its supply chain and Future Lifestyle Fashions which houses clothing brands such as Central and Brand Factory – add an additional 11,000 crore to the debt.
The lenders had agreed to a moratorium on interest between March 1, 2020 and September 30, 2021. They also agreed to waive all interest and criminal charges, default premiums and processing fees unpaid since March 2020. until the date of implementation of the takeover of Reliance Retail. .
These plans will now be called into question. “The only positive point in all of this is the extension by the central bank of the deadline to meet the financial parameters of companies undergoing restructuring,” said a second person familiar with the plan. “It gives Future a bit of a break to hit those metrics. Although it is that way, even it seems difficult. ”
RBI Governor Shaktikanta Das last Friday extended the deadline for companies to achieve four operational ratios – total debt to ebitda, current ratio, debt service coverage and average debt service coverage – to October 2022 from March 2022, citing the negative impact of the second wave. .
Lenders are now likely to approach both Reliance and Future Group to get a feel for the next course of action as they consider their options.