Future lenders to cancel debt recast if RIL deal gets ok2 min read . Updated: 21 Apr 2021, 12:38 AM IST
- RBI has allowed banks six months to implement a resolution plan, once they invoke a recast under its 6 August 2020 circular
Future Retail Ltd’s lenders plan to withdraw easier payment options offered to the company under a debt recast plan cleared last week if its ₹24,713 crore asset sale to Reliance group goes through, a banker aware of the matter said.
In August 2020, Reliance Retail Ventures Ltd (RRVL), a subsidiary of Reliance Industries Ltd, announced the acquisition of various assets of cash-strapped Future group, a deal that has come under legal challenge from Amazon.com Inc.
Future Retail’s lenders last week agreed to restructure its debt under parameters set by the Reserve Bank of India’s (RBI’s) K.V. Kamath committee, allowing the cash-strapped company to defer repayment by two years. However, lenders are hopeful that a transaction with Reliance Industries Ltd (RIL) will eventually take place, allowing them to recover their dues in full.
According to the banker cited above, while lenders have approved the recast, they view this largely as a temporary reprieve, allowing the retail chain to manage its cash flows in the interim. “The idea is to give Future a two-year breather, hoping that the Reliance deal wouldn’t take that long," the banker said.
“Once the deal is hopefully completed, the lenders plan to withdraw the relaxations and would prefer to get paid upfront," the banker said. He added that the deal, after approval from the Kamath panel, is expected to be implemented by 26 April.
RBI has allowed banks six months to implement a resolution plan, once they invoke a recast under its 6 August 2020 circular. The Kamath panel will vet all resolution plans of ₹1,500 crore and above.
“As part of the debt recast plan, Kishore Biyani has also offered to sell some of his non-core assets to bring in additional funds," the banker said.
The recast also involves an interest moratorium between 1 March 2020 and 30 September 2021. Interest during this period will be converted into a funded interest term loan (FITL), payable by December 2021. FITL is a fresh loan that helps stressed borrowers repay existing interest over time and is used in most large recasts. That apart, all penal interest and charges, default premiums, processing fees unpaid since March 2020 till implementation will be fully waived.
To be sure, the debt recast does allow a new lease of life to Future group founder Biyani, who had found himself in a similar debt trap in the past as well. In 2012, Future Group sold its controlling stake in its flagship lifestyle business, Pantaloon, to Aditya Birla Nuvo Ltd, part of the Aditya Birla Group. Biyani has since then pivoted the group to mainly focus on food and FMCG segments, along with fashion.
Future Retail owes banks ₹6,278 crore, showed data from Care Ratings. Its lenders include Union Bank of India, Bank of India, Bank of Baroda, State Bank of India, Indian Bank, Central Bank of India, Axis Bank and IDBI Bank.
“The lenders have no choice but to continue with the hope that sooner or later, the Reliance deal will go through as there are practically no physical assets in any retail business. The leases are not your properties, the inventories are perishable. For, if they do not go through recast, then you have to enforce recovery and the business suffers. If you don’t recast, then they could have taken the company to NCLT from where it is difficult to come back," said Arvind Singhal, chairman and managing director, Technopak Advisors, India.
Reliance Retail, the largest retailer in India, had last August entered into an arrangement to buy Future Group’s retail assets on a slump sale basis. However, litigations have thwarted progress.
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