Home / Companies / News /  Future Retail's lenders send an SOS to RBI

MUMBAI : Lenders to Future group plan to approach the Reserve Bank of India (RBI) to seek an exemption from tagging their loans to the retailer as non-performing assets (NPAs), a top banker aware of the matter said. The move comes after Future Retail Ltd’s weekend default set the clock ticking for such classification by the end of this month.

Following a 19-month moratorium on repayments, Future Retail was supposed to pay lenders 3,494.56 crore on or before 31 December. On Saturday, the company said it failed to meet the repayment obligation. Following this, Care Ratings downgraded Future Retail’s non-convertible debentures, long-term bank facilities and short-term bank facilities to default grade (Care D).

“This is an exceptional case where the account could soon turn non-performing because a deal, despite being signed over a year ago, is stuck in long-drawn litigation. It seems unlikely that the company would be able to sell non-core assets in 30 days and repay," the banker said seeking anonymity.

As part of a debt recast process, Future Retail was supposed to repay lenders by selling some non-core assets; however, its efforts have not yielded results. An RBI exemption from the NPA classification rule could help banks avoid making hefty provisions, which would erode profits.

Mint reported on Monday that Future Coupons Ltd, a group unit, moved the Delhi high court seeking termination of arbitration proceedings initiated by Amazon and underway at the Singapore International Arbitration Centre.

“We cannot approach RBI just based on the recent Competition Commission of India (CCI) order and will have to wait for a court to rule on the petition filed by Future seeking to quash the arbitration proceedings. If the court entertains the plea, we could then build our case of an extension citing extraordinary circumstances," the banker said.

Future Retail’s lenders include Union Bank of India, Bank of India, Bank of Baroda, State Bank of India, Indian Bank, Central Bank, Axis Bank and IDBI Bank. According to data from Care Ratings, the company owes banks 6,278 crore. Emails sent to spokespeople for Future Retail and lenders’ consortium leader Union Bank of India remained unanswered.

Last month, CCI suspended its 2019 clearance for Amazon’s 49% stake purchase in Future Retail’s parent Future Coupons Ltd and penalized it 202 crore for allegedly not being upfront about the actual scope of the deal.

Future Coupons owns a 7.3% stake in Future Retail through convertible warrants. As part of the investment accord between Future Group and Amazon, the US company secured the right to buy into Future Retail after three to 10 years, and a veto over selling the company to several specified companies, including Reliance Industries Ltd. After Future signed an agreement to sell to Reliance, Amazon moved an arbitration court in Singapore which issued an emergency order stopping the sale.

Under RBI’s debt recast framework issued on 6 August 2020, Future Retail has 30 days from the due date to repay lenders and avoid the NPA tag. However, if the loans are still in default with any lender at the end of this review period, they will be classified as non-performing. In that case, provisions would have to be made as if the recast never occurred, forcing banks to classify the account as “doubtful", requiring at least 25% provisions subsequently. “The long stop date for the deal has anyway been extended to 31 March. So we plan to request RBI for some forbearance till then, so that the account does not become an NPA in 30 days," the banker said.

In August 2020, Reliance Retail Ventures Ltd, a unit of Reliance Industries, agreed to buy Future’s retail assets on a slump sale basis for 24,713 crore. Future Group is trying to expedite the deal with Reliance to pay creditors and save the Big Bazaar retail chain from a possible collapse.

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