Future Group: The Clock Ticks For Lenders As Deal Awaits Green Light

Kishore Biyani, founder and chief executive officer of Future Group, poses in his company’s office in Mumbai, India. (Photographer: Santosh Verma/Bloomberg News)

Future Group: The Clock Ticks For Lenders As Deal Awaits Green Light

As the closure of a proposed deal between Kishore Biyani's Future Group and Reliance Retail Ltd. continues to drag out, lenders are starting to get nervous. The Future Group is having to take on more debt to keep operations running, particularly amid a pandemic-induced slowdown, leaving bankers questioning whether a larger share of the debt will now be unsustainable.

For every month of delay in closing the transaction with Reliance Retail Ltd, the Future Group is adding about Rs 200 crore in additional debt due to working capital needs, two people in the know told BloombergQuint. The people spoke on condition of anonymity.

The delays are largely due to a legal challenge mounted by Amazon.com Inc. against the deal with Reliance Retail. If the delays continue and the economy remains weak, more of the Future Group's outstanding debt could become unsustainable, the first of the two people said, adding this will also impact enterprise value.

As of now, the total debt for Future Group stands at around Rs 30,000 crore, according to the people cited earlier. In April, lenders to Future Group had recast the company's debt under the Reserve Bank of India's one-time restructuring scheme, allowing the group's companies more time to repay.

Even that may prove to be inadequate if delays with the Reliance Retail deal persist.

As per the deal announced in August 2020, Future Group agreed to sell its retail, logistics and warehousing businesses at an enterprise value of around Rs 25,000 crore. Debt worth Rs 12,700 crore would be transferred to the Mukesh Ambani-owned company's balance sheet, the first person said.

The deadline to conclude the deal has been extended from March 31 to Sept. 30, to account for the delays caused by the legal challenges from Amazon Inc. The transaction has received approvals from the Competition Commission of India and the Securities and Exchanges Board of India.

Arbitration proceedings in Singapore resumed this week. In India, the matter is pending in the Supreme Court before a three-judge bench of Justice RF Nariman, Justice KM Joseph and Justice BR Gavai.

Future Group declined to comment. Future Group's largest lender State Bank of India didn't respond to queries mailed.

In Wait & Watch Mode

According to the first person, lenders led by SBI are closely monitoring developments as covenants within the one-time restructuring plan may be breached if debt burden becomes unsustainable again. While the one-time restructuring plan has eased the repayment schedule, Future Group does need to make certain bullet repayments by December 2021, the person said.

There are two scenarios the lenders are working with currently, the two people cited earlier said.

The first being an early resolution of the legal issues from Amazon, which would allow the Reliance Retail deal to go through. In this case, lenders continue with the restructuring plan for the remaining businesses as currently planned.

Even if that doesn't happen and cash flows improve with a pick-up in the economy, the current plan can remain in place, the people said.

The lenders are also watching asset sales proposed during the restructuring scheme, where Future Group had agreed to sell its two insurance businesses and the small format retail store business. The sale proceeds are expected to reduce the group's debt burden and also infuse cash into its remaining businesses.

While sale processes have been initiated for these sales, a definitive plan is yet to emerge.

Currently, SBI General Insurance is in talks with Future Group to fully buyout Future Generali India Insurance, the second of the two people cited earlier said. The discussions have been on since last year, when Future Group had announced its intent to exit the insurance businesses.

Separately, Italy's Generali Group has also expressed its intention to raise its stake in Future Group's insurance businesses as 74% foreign direct investment is now permitted. According to the second person cited earlier, discussions with Generali Group are still on.

If none of these scenarios play out as expected, lenders will have to review the restructuring plan implemented in April, the people said.

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