Lenders to Future group have agreed to recast its loans under the Reserve Bank of India’s (RBI) one-time restructuring scheme as the deal with Reliance Industries Ltd (RIL) remains mired in a legal spat, two bankers aware of the development said.
The lenders led by State Bank of India (SBI) have already invoked the debt recast scheme well within 31 December, the deadline set by RBI, and will have six more months to finalize and implement a resolution plan, said one of the bankers, requesting anonymity.
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“The resolution plan has not been finalized, but we have decided to invoke the one-time restructuring clause so that Future is eligible for easier repayment terms,” said the banker, who is part of the lenders’ consortium. He said talks were on since October on a proposal to restructure Future group’s loans as it has been facing liquidity pressures worsened by the pandemic.
“We had signed inter-creditor agreements (ICA) as a precursor to a restructuring of loans although hoping it would not be necessary if the deal with Reliance fructified. However, as things stand today, this is the only way out,” the banker said.
RBI has also allowed lenders to invoke debt recast even without any specific resolution plan. While RBI’s 6 August debt recast plan does not come with a standstill clause on asset quality if loans turn bad between invocation and implementation of resolution plan, the loans can be upgraded to standard once the resolution is completed.
While the Delhi high court on Monday permitted Future Retail Ltd to proceed with the sale of its assets to a unit of Reliance Industries, it also allowed Amazon.com Inc. to approach appropriate forums to oppose the transaction.
Future group owes around $3 billion in loans which, in the event of a protracted legal battle with Amazon, may turn sour, bankers fear. The group also owes mutual funds that had invested in securities sold by group entities, including Rivaaz Trade Ventures, NuFuture Digital India and Future Ideas Co. A tussle over ownership of Future group between two of the world’s richest men—Mukesh Ambani of Reliance and Jeff Bezos of Amazon—has left lenders in the lurch, scrambling to soften the blow to their asset quality.
Given that multi-brand retailing is not permitted, Amazon can’t acquire Future Retail’s businesses directly. It had, however, in partnership with domestic private equity firm Samara Capital, acquired grocery retail chain More from the Aditya Birla group for roughly ₹4,200 crore in 2018.
Amazon took a 49% stake in Future Coupons Pvt. Ltd for ₹1,430 crore in 2019, on the condition that without its consent, Future and its promoters cannot sell any stake or forge an alliance with 30 retail entities, including Reliance.
Thereafter, when Reliance acquired Future’s retail and wholesale assets on 29 August, Amazon moved the Singapore International Arbitration Centre on 8 October. Following that, an emergency arbitrator on 25 October backed Amazon, restraining Future from proceeding with the deal, a decision challenged by Future group in the Delhi high court.
Analysts said if the uncertainty lingers, it may be detrimental for the deal. “Our channel checks indicate Future Retail’s stores are closing due to non-payment of rent and are also facing a supply-chain crisis due to huge outstanding vendor payables. As a result, it has restricted inventory to private-label brands. Any delay in the completion of the acquisition could be detrimental to Future group’s retail assets,” said analysts from Motilal Oswal Institutional Equities in a 22 December note.