Reliance Industries-Future Group deal saves lenders from a $2.2 billion debt hole
Premium- 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.
Mumbai: Future Group lenders have been saved from a $2.2 billion hit on their exposure to the conglomerate after the company announced its sale of all its businesses to Reliance Industries (RIL) for ₹24,713 crore on Saturday. Post the deal Mukesh Ambani's Reliance Retail Ventures (RRVL) will hold 13.14% stake in Kishore Biyani's Future Enterprises Ltd and will take over debt of ₹12,500 crore.
Lenders led by Axis Bank have a total exposure of ₹16,000 crore to the conglomerate. Analysts believe that there is most likely no haircut to lenders who have lent for business operations. According to data collated by ICICI Securities, Bank of India led consortium holds an exposure of ₹5750 crore, Axis Bank holds ₹1250 crore and Bank of Baroda holds ₹750 crore.
However, promoter level debt worth ₹11,900 crore will remain with the promoters, said a person close to Future Group who spoke on conditions of anonymity. Analysts believe that lenders may have to take a hit on this debt, post the discussion with the lenders next week.
Currently, Future group is a standard asset on the books of banks and had availed of the loan repayment moratorium which ends on 31 August. An executive director at a public sector bank said that as per 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.
The retail giant had been in financial difficulty since the nationwide lockdown started hurting its businesses, worsening its already strained financial position.
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.
As per the company, it was originally due to make the interest payment on its 5.60 percent 2025 dollar notes on July 22 which it missed. “Due to the nationwide lockdown imposed to restrict the spread of COVID-19 pandemic, and consequently restricted business 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 22nd 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," the exchange notification said.
Future Retail's 30-day grace period to make the payment of interest has now ended.
As part of the deal, the Retail & Wholesale Undertaking is being transferred to Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of Reliance Retail Ventures (RRVL). The Logistics & Warehousing Undertaking is being transferred to RRVL.
Mint, with 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 said the release.
As a part of the acquisition, Future Group will first merge certain companies carrying on the aforesaid businesses into Future Enterprises Limited (FEL).
The retail and wholesale undertaking of Future Group will be transferred to Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of RRVL.
The logistics and warehousing undertaking will be transferred to RRVL directly.
RRFLL also proposes to invest ₹1,200 crore in the preferential issue of equity shares of FEL (Future Enterprises Ltd) 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 net profits declined to ₹164.56 crore on a consolidated basis in Q3FY20 from ₹197.60 crore in the year-ago period. Revenue from operations decreased to ₹5,193.19 crore in Q3FY20 compared to ₹5,368.46 crore in Q3FY19.
