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Home / Companies / News /  Will it, wont it? Lenders worried as Future Retail's payment deadline looms

MUMBAI : Banks fearful of a loan default have held talks with Future Retail Ltd as they fear the troubled retailer may not be able to pay its dues on time, two people aware of the discussions said. Since the loan has been restructured once already, a default would mark it as a failed recast, forcing them to make provisions of 25% once it turns bad.

According to the people, who spoke on condition of anonymity, the discussions have centred on the road ahead for Future Retail, which must pay by 31 December its first loan instalment after a 19-month moratorium that ended on 30 September. If Future Retail fails to make the payment—a scenario banks are preparing for—it would become a defaulter on 1 January, and the loan would be subsequently classified as non-performing.

“If the loan turns bad, more provisions would have to be set aside than a regular non-performing asset (NPA) as it would be considered a failed restructuring under RBI guidelines released on 6 August," one of the people cited above said. In such cases, provisions would have to be made as if the recast never occurred, he added, forcing banks to classify the account as “doubtful", requiring at least 25% provisions subsequently.

The people cited above said talks have been inconclusive so far and more rounds of discussions will be held among bankers and with the management of Future Retail.

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, Future Retail owes banks 6,278 crore. The Future group owes around $3 billion in loans on an aggregate basis.

Under RBI rules, banks must classify NPAs into three buckets—substandard, doubtful and loss asset—depending on the duration of default. As bad loans remain on a bank’s books for longer, the chances of them being recovered also diminish.

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

“Considering Reliance Retail is supporting Future Retail’s operations, a scenario where the deal falls through is unimaginable. However, as the legal battle rages, we are apprehensive the company might find it hard to repay the first instalment on time," the person cited above said.

Spokespeople for Union Bank of India and Future Retail did not respond to emails seeking comments on the story.

The deal was initially scheduled to be completed by March 2021; however, it was pushed back till March 2022 as a legal battle with Amazon erupted. Amazon has objected to the Future Group’s sale to RIL, citing a violation of its investment agreement with Future Group that barred it from selling its assets to other entities. A tussle over the assets of Future Group between two of the world’s richest men—Mukesh Ambani of Reliance and Jeff Bezos of Amazon—has left lenders scrambling to recover their loans to the Future Group.

In August 2019, Amazon had bought a 49% stake in Future Coupons Ltd (which owns 7.3% equity in Future Retail through convertible warrants), with the right to buy into the flagship Future Retail after 3 to 10 years.

Mint reported on 30 November that Amazon.com Inc. and a lobby of at least 15,000 small businesses have written to the markets regulator, demanding revocation of the conditional approval it has granted to the deal for the Future Group to sell its retail assets to Reliance Industries Ltd. The US e-commerce giant and the Confederation of Indian Micro Small and Medium Enterprises have written two separate letters to the Securities and Exchange Board of India on the matter.

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