Wait gets longer for lenders to Future2 min read . Updated: 19 Oct 2020, 06:39 AM IST
Legal tussle for group’s assets clouds recovery of $3 bn debt
Lenders to Future group may see $3 billion worth of loans turning sour because of a delay in the sale of the Kishore Biyani-led group’s assets to Reliance Industries Ltd after Amazon.com Inc. dragged its Indian partner to a Singapore arbitration court to halt the deal.
While Future group firms owe close to ₹16,000 crore to a clutch of banks and debt mutual funds, Future group founder Biyani owes an additional ₹11,000 crore to several lenders. “While the loan exposures remain standard so far, several lenders have begun provisioning processes, anticipating delays in the deal," said a senior banker directly involved in the transaction. “If the delay is inordinate, then most lenders will have no option but to make bigger provisions for these," the person added.
Amazon has cited a clause in the company’s 2019 investment pact in Future Coupons Ltd that specifically bars the Future group from forging a pact with Reliance Industries, Mint reported on 16 October.
The US firm’s bid to void the Future Group’s asset sale to Reliance Industries jeopardizes not only the recovery of loans but also indicates that Amazon is ready to turn the pressure on Reliance Industries, which is trying to grab a slice of the online market after emerging as India’s biggest offline retailer.
Of the loans given to Future Group firms, a Bank of India-led consortium has the biggest exposure of ₹5,750 crore. Axis Bank lent ₹1,250 crore and Bank of Baroda ₹750 crore. The Future group also owes mutual funds that had invested in securities sold by group entities, including Rivaaz Trade Ventures, NuFuture Digital India and Future Ideas Co.
Reliance Retail Ventures Ltd, a unit of India’s most valuable firm, on 29 August announced it would acquire Future Enterprises Ltd for ₹24,713 crore.
The transaction was the outcome of months of hard negotiations between lenders, Future group promoters and Reliance Industries, which finally resulted in a zero haircut on the debt for the lenders.
“Future group had thought the banks and mutual funds would start lending again, but this is unlikely to happen now," said a corporate lawyer, adding that the arbitration proceedings put a question mark on the deal and also whether the Future group will be saddled with damages," said second person, a senior banker.
Amazon.com sent a legal notice to Biyani on 8 October, calling the deal a breach of the 2019 agreement between Amazon and Future.
“If the arbitration delays the deal, we would not be surprised if Reliance Industries pulls out of the deal," said Arvind Singhal, chairman of Technopak Advisors, adding that if the current retail business goes down and then there is a huge amount of attrition in the perceived value of Future Retail, Reliance Industries may be left with only the leases of those retail stores. “Why would it want to pay ₹24,700 crore for the leases?"
Given that foreign direct investment in multi-brand retailing is not permitted, Amazon can’t acquire Future Retail’s businesses directly. It has, however, forged a tie-up with domestic private equity firm Samara Capital and had acquired grocery retail chain More from Aditya Birla group for roughly ₹4,200 crore in 2018.
Mint reported in June that Samara was in advanced talks to buy a stake in Kishore Biyani’s Future Retail. If a deal with Reliance is delayed or called off, Future may have to apply for restructuring its debt. However, without a viable business plan, lenders may find it difficult to approve such a recast.