Home / Opinion / Views /  In Future take over, Reliance is the de facto winner, despite apparently losing

Heads I win, tails you lose  

Can you emerge as the winner after losing your bid to buy out a rival? Take the case of the takeover bid of Future Retail by Reliance Industries Limited (RIL). 

Back in August 2020, Reliance Retail Ventures, a subsidiary of flagship RIL, had offered a 24,713-crore deal to acquire, on a slump sale basis, all the assets of the debt-laden Future Retail Limited (FRL). The deal involved Reliance Retail taking over the Future Group’s 19 assorted companies in the retail, wholesale, logistics and warehousing spaces, along with all their assets.   

Last week, the secured creditors to FRL voted overwhelmingly against the offered deal, citing unspecified “uncertainties" over the deal, and a reported eleventh-hour sharp reduction in the deal value by Reliance Retail Ventures, even as a majority of Future Retail shareholders voted overwhelmingly in favour of the deal.   

“The shareholders and unsecured creditors of FRL have voted in favour of the scheme. But the secured creditors of FRL have voted against the scheme. In view thereof, the subject scheme of arrangement cannot be implemented," RIL said in a regulatory filing.   

With the deal falling through, and some lenders having already approached the bankruptcy court, the only option left for FRL’s lenders is to try and realize as much as they can by selling off FRL, either whole or in parts, in order to recover their dues.   

Under the earlier proposed deal, domestic secured creditors to FRL were assured of recoveries ranging from 34% to 88% (with higher recovery percentages for smaller lenders), while overseas creditors were assured full repayment. This differential treatment, according to some media reports, was one of the reasons creditors rejected the RIL bid. But will they get more through the NCLT resolution?  

That looks unlikely. Banks have taken an average haircut of 80%, according to data disclosed by the Insolvency and Bankruptcy Board of India (IBBI) to a parliamentary panel last year. In big-ticket cases – Future Retail group collectively owes creditors an estimated 29,000 crore – the haircuts have been in excess of 90%.  

For Ambani, that is good news. Reliance can try and acquire the balance assets of FRL at a fraction of its original bid price. In any case, back in February itself, Reliance had started the process of the takeover of 947 Future Group stores, by occupying 200 Big Bazaar stores, citing default in payment of lease rentals by Future Group as the immediate cause.  

In March, Future Retail said it has received termination notices from Reliance in relation to another 835 sub-leased properties including 342 large format stores, and 493 small-format stores. Future Lifestyle also served marching orders on 112 properties leased from Reliance Retail for failure to pay rent dues.   

Effectively, that means that Reliance has already taken over the biggest assets of FRL – its network of retail stores. In addition, Reliance Retail has also issued job offers to FRL employees. As for the inventory on shop shelves, while they are legally in hock to banks, Reliance Retail had been reportedly supplying many items to the cash-strapped Future Retail. Besides, the banks, although they placed newspaper ads warning against dealing with FRL’s assets, have failed to launch any kind of action against Reliance.  

So, while de jure, the insolvency case will wind its way through courts, while Amazon’s complex legal blockers to the now infructuous deal wind their way through other courts at home and abroad, Reliance is the de facto winner. Despite apparently losing. 

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