Future-RIL deal protects banks from a $2.2-bn hit3 min read . Updated: 31 Aug 2020, 06:31 AM IST
- There will likely be no haircut for lenders who gave loans for Future’s biz operations
- Post the deal, RRVL will hold a 13.14% stake in Future Enterprises and will take over debt of ₹12,500 crore
MUMBAI : Future Group lenders have been saved from a $2.2 billion hit on their exposure to the conglomerate after the company announced a stake sale of its businesses to Reliance Industries Ltd (RIL) for ₹24,713 crore on Saturday.
Post the deal, Mukesh Ambani’s Reliance Retail Ventures (RRVL) will hold a 13.14% stake in Kishore Biyani’s Future Enterprises Ltd (FEL) and will assume debt of ₹12,500 crore.
Lenders have a total exposure of ₹16,000 crore to the conglomerate. A consortium led by Bank of India has an exposure of ₹5,750 crore; Axis Bank holds ₹1,250 crore, and Bank of Baroda holds ₹750 crore, according to data collated by ICICI Securities. There is likely to be no haircut to lenders who have lent for business operations, said analysts, offering a huge relief to the banks.
However, promoter-level debt worth ₹11,900 crore will remain with the promoters, said a person close to Future Group on the condition of anonymity. Lenders may have to take a hit on this debt, analysts believe, after a discussion with the promoters next week.
Future Group is currently a standard asset on the books of banks, having availed of the loan repayment moratorium, which ends on 31 August. An executive director at a state-run bank said according to the original plan discussed with lenders, there was no haircut involved as Future Group will repay some of the outstanding dues from the proceeds and the rest of the liabilities will be taken over by RIL.
Financial woes at the retail giant escalated since the nationwide lockdown was imposed, worsening its already strained financial health. Future Group had a consolidated debt of ₹12,778 crore as of September 2019, as per the company’s public records. Its flagship company, Future Retail, had a gross debt of ₹2,657 crore as of March 2019.
The company said it was originally due to make the interest payment on its 5.6% 2025 dollar notes on 22 July, which it missed. “Due to the lockdown imposed to restrict the spread of the pandemic and consequently restricted operations of the company, the liquidity position has been affected causing us to miss the service of the payment of interest due on the USO Notes (listed on Singapore Stock Exchange) on 22 July 2020. The terms of issuance of the USO Notes provide for an additional period of 30 days for payment of interest from the due date, in case the same could not have been paid on the original due date," according to a filing by Future Retail.
Future Retail’s 30-day grace period to make the payment of interest will end on Monday.
As part of the deal, the retail and wholesale undertaking is being transferred to Reliance Retail and Fashion Lifestyle Ltd (RRFLL), a wholly-owned unit of RRVL. The logistics and warehousing undertaking is being transferred to RRVL directly.
Mint, in its 11 June report, was the first to say that Reliance Retail was in advanced discussions to acquire these businesses from the debt-laden Future Group. The deal is subject to adjustments as set out in the composite scheme of arrangement.
As a part of the acquisition, Future Group will first merge certain companies carrying on these businesses into FEL.
RRFLL also proposes to invest ₹1,200 crore in the preferential issue of equity shares of FEL to acquire 6.09% of post-merger equity and ₹400 crore in a preferential issue of equity warrants which, upon conversion and payment of balance 75% of the issue price, will result in RRFLL acquiring further 7.05% of FEL.
Future Retail’s profit fell to ₹164.56 crore on a consolidated basis in Q3FY20 from ₹197.60 crore in the year-ago period. Revenue from operations declined to ₹5,193.19 crore in Q3FY20 from ₹5,368.46 crore in Q3FY19.