Future Group Lenders Grapple With Uneasy Choices

Lenders to the Future Group have found themselves in a sticky spot once again.

Loans given to the group were restructured under the one-time restructuring window permitted during the Covid crisis in December 2020. With the moratorium period provided under this scheme coming to an end on Dec. 31, 2021, lenders need Future Group to start repaying its principal and interest dues.

The problem is that the financial position of the group may not permit it to regularise payments just yet and a sale of assets to pay the dues has been complicated by an ongoing legal tussle between Amazon Inc. and Future Group.

The Rs 30,000 crore debt extended to various Future Group companies has been pending repayment since the first Covid wave hit in March 2020.

Queries mailed to Future Group and Amazon on Thursday and Reliance Retail Ventures Ltd. on Friday remained unanswered. An email sent to SBI on Thursday was also not answered.

Sale Options Available But...

The first option facing Future Group's lenders is to push for a sale of the small format stores owned by the group under the Easyday brand. Future Group sells fast moving consumer goods through these outlets.

According to three people familiar with the matter, who spoke on condition of anonymity, Easyday's enterprise value could be as high as Rs 3,000 crore. A sale could help lenders get some repayments immediately, giving Future Group more time to close the Reliance Retail deal and repay the rest.

But it's not clear whether such a sale can go through.

Easyday's 1,000 stores are part of the proposed deal with Reliance Retail. If the lenders permit the sale before deal closure, the valuation of Future Group's franchise would come down accordingly, the first of the three people quoted above said. Amazon Inc's position is also not clear on this sale and if the international retail giant objects to the sale, it may lead to another legal battle, which lenders want to avoid, the first person said.

While Future Group has proposed this option to lenders, no formal plan has been submitted, said the second person quoted above.

Lenders to the group are also divided on the option. Not all are in favour since only Future Retail's lenders will get paid through this deal, said the second person.

The flagship company of Future Group owed around Rs 10,000 crore to its creditors including banks, financial institutions and debenture holders, the people quoted above said.

The second option available to lenders is to push ahead with a formal sale process for Future Generali India Insurance Co., said the third person quoted above.

Currently, Future Group is negotiating with some buyers including SBI General Insurance to sell its stake in the general insurance venture. Separately, Italy's Generali Group has also expressed interest in raising its stake in the business, by buying out Future Group's stake. However, these talks have so far remained inconclusive.

Lenders have so far not looked at this option seriously, as they are unsure if the proceeds from the sale are substantial enough to cover Future Group's payment obligations, the first of the three people quoted above said.

Pull The Plug?

The final option facing lenders is to just let Future Group slip into non-performing category. However, they are trying to avoid this scenario for a number of reasons.

Firstly, since the repayments have been due for nearly two years, lenders will need to make sizeable provisions against Future Group companies' debt.

Next, lenders will be forced to conduct a forensic audit of Future Group companies' financials, as they are required to for large corporate debt accounts. Owing to the large number of subsidiary firms, an audit exercise will likely be time consuming and lenders will need to monitor all business affairs in the interim.

Such a move may also delay the Reliance Retail deal further.

In such a situation, lenders may then need to invoke insolvency resolution, according to the first two people quoted above, which could further complicate matters. Any indication of going down the insolvency route could lead to operational creditors and lessors reviewing their contracts with Future Group, which will then affect the resolution process, the third person quoted above said.

For now, the retail group's lenders are left with about three weeks before the crucial deadline ends. Any extension on the moratorium is not an option for large corporate restructuring, as the banking regulator only allows it for small borrowers.

When the scheme was implemented, lenders had expected that the sale of Future Group's retail, wholesale, logistics and warehousing businesses to Mukesh Ambani's Reliance Retail for Rs 25,000 crore would be closed. The deal involved transferring Rs 12,700 crore worth Future Group's debt to Reliance Retail.

However, this deal has seen inordinate delays due to opposition by Amazon Inc. To account for the delays due to Amazon's legal challenges, Reliance Retail has extended the deadline for completion of the deal from Sept. 30 to March 31, 2022.