Mumbai: About $14 million in scheduled coupon payments, falling due later this month, could be a trigger for some debt investors to suggest legal measure against the Future Group if the local retailer fails to meet its financial commitment to bondholders.
Bond investors, who own a minority portion of Future Group’s aggregate debt liability of ₹21,000 crore, may be more eager than banks to initiate legal proceedings in the event of missed coupon payments after Friday’s Supreme Court order stalled a vital deal with Reliance Retail. Banks, although unsure about the recovery prospects of the bulk of the ₹21,000-crore of debt they own, are more circumspect as some of them believe the payout could be lower through the insolvency mechanism.
Last week’s Supreme Court ruling upheld the Singapore Arbitration Court’s emergency order that put the proposed Future Group sale to Reliance Retail on hold because of some alleged breaches of the terms on an earlier ₹1,431-crore investment by US retailer Amazon in Future Coupons.
Local and overseas banks — 28 of them led by — were counting on Reliance Retail’s takeover of the Future Group for recovery of their dues. “Everything was hinged on this deal and now with it being delayed, we are not really sure of how and when we will get our money back,” said a banker involved in the debt restructuring at the retailing group. “Forget the repayment, even the restructuring plan that was approved earlier this year is facing questions.”
The Future Group didn’t respond to ET’s mailed query on its debt commitments. Executives at Amazon and Reliance Retail could not be immediately reached for comments.
In April, the KV Kamath Committee set up by the Reserve Bank of India (RBI) approved a proposal by the lenders to restructure loans to Future Retail and Future Enterprises, the main units of the Kishore Biyani-led group. Bank of India is the lead lender among the 28 local and overseas financiers that floated the loan recast plan.
According to that deal, Future Group had promised to pay banks ₹6,900 crore in two tranches by the end of FY22, mainly by selling its small format stores. This would allow lenders to convert the short-term loans, non-convertible debentures and overdue working capital loans into term loans, which were to be repaid in two years. The group has not yet identified any buyers for these stores.
To be sure, bankers had agreed on the deal as a temporary arrangement on expectation that the Reliance takeover will be completed soon, meaning the lenders would no longer depend upon Future to make the payments.
With this latest court order, all such plans will have to be reconsidered. “To be honest, there is no future for Future Group without Reliance. The group has very little immovable property or assets that can be sold,” said the banker cited above. “All their assets are in the form of inventory and receivables that are very difficult to recover. The Reliance-led plan is the best option right now because even if we go to bankruptcy courts, the recovery will be very low.”
Future Retail is the largest debtor in the group, with about ₹10,000 crore of dues. Two other listed companies — Future Enterprises that holds its supply chain, and Future Lifestyle Fashions that houses apparel brands such as Central and Brand Factory — add another ₹11,000 crore to the debt pile.
Lenders had agreed to an interest moratorium between March 1, 2020 and September 30, 2021. They had also agreed upon waiving all penal interest and charges, default premiums and processing fees unpaid since March 2020 to the date of the implementation of the Reliance Retail takeover.
These plans will now be questioned. “The only positive thing in all this is the central bank’s extension of the timeframe for meeting the financial parameters for companies undergoing restructuring,” said a second person aware of the plan. “This gives Future some breathing space in achieving these metrics. Although the way things are, even that looks tough.”
Last Friday, RBI governor Shaktikanta Das extended the deadline for companies to achieve four operational ratios — total debt to ebitda, current ratio, debt service coverage and average debt service coverage — to October 2022 from March 2022, citing the adverse impact of the second wave.
Lenders are now likely to approach both Reliance and Future Group to get an idea of the next course of action even as they contemplate their options.