Failure to divest non-core assets to boost capital base alarms lenders
Bankers said that while Future Group still has some time left before the moratorium ends, it must act fast
Lenders to Future Group are assessing the Kishore Biyani-led group’s ability to sustain operations after a loan moratorium ends in September, two people directly aware of the matter said.
The lenders are alarmed by Future Group’s delay in divesting any non-core assets, a crucial part of the loan restructuring process aimed at shoring up its capital base, the people said, requesting anonymity.
Burdened with debt, Biyani chose to sell the cash-strapped group’s assets to Mukesh Ambani’s Reliance Industries Ltd for ₹24,713 crore in August last year. The asset sales were expected to buy the cash-strapped group crucial time until Reliance could complete the takeover.
However, the move angered existing investor Amazon.com Inc., which initiated legal proceedings, stalling the purchase by billionaire Ambani.
“The ability of a recent debt recast to rescue Future Retail now solely depends on the company’s ability to sell assets and infuse funds even as the wait for a takeover by Reliance Industries grows longer," said a senior banker, one of the two people cited above. “While Reliance Industries has been supporting Future’s operations, the company still has to meet the asset-sale commitments made as part of the recast deal. For instance, the company planned to sell its insurance business to raise funds, but that has not happened yet."
The acquisition of Future Group by Reliance Industries is the only way out, in the long run, said the second person, also a senior banker.
“We are reviewing all accounts recast under the one-time restructuring window, including Future Retail. As of now, they have not been able to sell some assets but are in discussions with investors," the person added.
According to the debt recast approved by the lenders, a moratorium would be in force till September. The interest accrued during the moratorium will be converted into a term loan, payable by December.
The arrangement is aimed at helping the stressed borrower repay existing interest over time.
That apart, all penal interest and charges, default premiums, processing fees unpaid since March 2020 till the implementation will be fully waived.
Bankers said that while Future Group still has some time left before the moratorium ends, it must act fast.
Experts pointed out that there is a possibility that Reliance Industries will renegotiate the Future Group deal, given the erosion of value in the group’s business.
“The value impairment of Future Retail could be significant if the business has performed badly in the past year. So, I would not be surprised if Reliance Industries renegotiates the value," said Arvind Singhal, chairman and managing director of Technopak Advisors.
Meanwhile, an official associated with the recast process said that the business has improved during the second wave from an operational standpoint.
Also, Reliance Industries has been working as a vendor for Future, supporting its operations, the official said.
Spokespeople for Future Group and Union Bank of India, the lead lender, did not respond to emails sent on Tuesday.
While the original deadline of the deal was March, it was extended to September because of the legal battle with Amazon.