Future Group seeks lenders’ nod to recast Rs 8,400 crore FEL debt post Reliance deal
FEL’s debt was restructured once last November under the Reserve Bank of India’s one-time restructuring (OTR) scheme for companies affected by Covid-19. However, at the time of entering into the OTR, lenders and the company had not envisaged that the ₹24,713-crore, multi-stage asset sale deal with Reliance group entities, which is now mired in litigation with global ecommerce giant Amazon, would be delayed beyond a year.
In August 2020, Future had entered into a scheme of arrangement with Reliance which involved the merger of 19 Future group companies including Future Retail, Future Lifestyle and Future Supply Chain with FEL. In the second stage of the proposed transaction, FEL through a slump sale would sell the retail and wholesale business – such as Big Bazaar, Foodhall, Central and Brand Factory to Reliance Retail & Fashion Lifestyle while the logistics and warehouse business would be sold to Reliance Retail Ventures.
Once the assets are sold through the slump sale, it is projected by lenders that FEL’s revenues will not be adequate to sustain its debt. This has prompted FEL to seek debt recast from lenders, the people quoted above, said. Future group’s financial advisor, EY had proposed a recast of residual debt at the meeting with lenders held a fortnight ago, the same person said.
The company spokesperson in an email response said: “A robust business plan and revenue projections for FEL were planned keeping in mind the business post the deal including the business from Reliance. And those projection and plans are very much sound and intact. And there is no recast that is envisaged and proposed.”
EY did not respond to a request for comment.
Any further debt recast, if it happens, will hinge on the outcome of proceedings at the Singapore International Arbitration Centre (SIAC), which will soon start hearing the Amazon plea seeking to block the proposed deal with RIL group entities. Amazon is claiming that its agreement with Future Coupons, a promoter holding firm, bars Future Retail from selling its assets to restricted parties including Reliance. SIAC passed an emergency interim order earlier this year which stayed the sale process until it passes a final order. Earlier this month, it also said Future Retail is party to the arbitration in the dispute over the sale of its assets to Reliance.
As it is, the long stop date for the deal has been extended by one year to March 31, 2022.
EY has proposed that a debt restructuring, if needed, should be under Section 230 of the Companies Act which will be part of the scheme of arrangement between lenders and the company, the people quoted above said. More importantly, if done under Section 230, a restructuring tag will not be attached to FEL in which Reliance Retail Venture would hold a 13.14% equity stake. Reliance will not want to associate itself with any company that is restructured in books of banks, they said.
However, lenders have disagreed. They have conveyed that any rejig in the terms of loans will have to be tagged as restructured as per the June 7, 2019 circular of RBI. Once an account is tagged as restructured it will have to be classified as a non-performing loan for at least a year.
Even when the OTR was signed by lenders in November last year, some banks had expressed concerns over FEL’s ability to service the residual debt, the second person said.