Future-RIL Deal Protects Banks from a $2.2 Billion Hit
CEO Insights Team, 0
Lenders have a total exposure of Rs.16,000 crore to the conglomerate. A consortium led by Bank of India has an exposure of Rs.5,750 crore; Axis Bank holds Rs.1,250 crore, and Bank of Baroda holds Rs.750 crore, according to data collated by ICICI Securities. There is likely to be no haircut to lenders who have lent for business operations, said analysts, offering a huge relief to the banks. However, promoter-level debt worth Rs.11,900 crore will remain with the promoters, said a person close to Future Group on the condition of anonymity. Lenders may have to take a hit on this debt, analysts believe, after a discussion with the promoters next week.
Future Group is currently a standard asset on the books of banks, having availed of the loan repayment moratorium, which ends on 31 August. An executive director at a state-run bank said according to the original plan discussed with lenders, there was no haircut involved as Future Group will repay some of the outstanding dues from the proceeds and the rest of the liabilities will be taken over by RIL.
Post the deal, Mukesh Ambani’s Reliance Retail Ventures (RRVL) will hold a 13.14 percent stake in Kishore Biyani’s Future Enterprises Ltd (FEL) and will assume debt of Rs.12,500 crore
Financial woes at the retail giant escalated since the nationwide lockdown was imposed, worsening its already strained financial health. Future Group had a consolidated debt of Rs.12,778 crore as of September 2019, as per the company’s public records. Its flagship company, Future Retail, had a gross debt of Rs.2,657 crore as of March 2019.
The company said it was originally due to make the interest payment on its 5.6 percent 2025 dollar notes on 22 July, which it missed. “Due to the lockdown imposed to restrict the spread of the pandemic and consequently restricted operations of the company, the liquidity position has been affected causing us to miss the service of the payment of interest due on the USO Notes (listed on Singapore Stock Exchange) on 22 July 2020. The terms of issuance of the USO Notes provide for an additional period of 30 days for payment of interest from the due date, in case the same could not have been paid on the original due date,” according to a filing by Future Retail.
Future Retail’s 30-day grace period to make the payment of interest will end on Monday. As part of the deal, the retail and wholesale undertaking is being transferred to Reliance Retail and Fashion Lifestyle Ltd (RRFLL), a wholly-owned unit of RRVL. The logistics and warehousing undertaking is being transferred to RRVL directly. As a part of the acquisition, Future Group will first merge certain companies carrying on these businesses into FEL.