Future Retail Lenders Seek To Push Back An Insolvency Filing
Future Retail's top lenders want to avoid an insolvency proceeding but not all are convinced.
Lenders to Future Retail Ltd. are mulling the invocation of the Reserve Bank of India's June 2019 circular for restructuring stressed accounts, as they try to delay insolvency proceedings.
According to two people with direct knowledge of the matter, lead lenders, especially State Bank of India, are keen on invoking the circular, as it allows a second restructuring of the loan account and will provide time for a new resolution plan to be implemented.
According to the June 7, 2019 circular, lenders are allowed a 30-day review period and another 180 days to come up with a resolution plan. The scheme requires lenders to set aside additional provisions of 20% if a resolution plan is not implemented after 180 days. If a resolution plan is not implemented within 365 days after the scheme is invoked, additional 15% provisions will be required by lenders.
Invoking the circular, however, would allow lenders to push back an insolvency filing against Future Retail, the people quoted above said on the condition of anonymity.
Future Retail owes around Rs 10,000 crore to its creditors, including banks, external commercial lenders and bondholders. Major lenders to Future Retail include Union Bank of India, Bank of India, SBI and Bank of Baroda.
On Jan. 1, Future Retail informed exchanges that it had not paid Rs 3,494 crore due to its creditors as per terms of the one-time restructuring invoked for the company under a scheme permitted by the RBI during the Covid crisis. The company was unable to make the payment even within a 30-day grace period provided under the scheme. A plan to sell Future Group's small-format stores to make the payment has not worked out.
Since then, Future Retail has approached the Supreme Court to block lenders from classifying the loan account as a non-performing asset. However, last week, lenders informed the top court that the process of NPA classification had already started.
While announcing quarterly earnings, SBI Chairman Dinesh Khara told reporters that the bank had set aside Rs 1,700 crore in additional provisions in the October-December quarter against a "large retail company".
Queries mailed to Future Group and SBI on Tuesday were not answered.
Not A Done Deal
Not all lenders are in favour of invoking a new restructuring scheme.
Top lenders fear that an immediate insolvency proceeding could lead to loss of value for Future Retail. This is because an insolvency proceeding could lead to suppliers ending arrangements with the retail firm. Moreover, the time required to resolve a large entity such as Future Retail, which has multiple subsidiaries and associate companies, could be long, the second person quoted above said.
The additional time under the June 2019 restructuring scheme will give space to Future Group to deal with legal challenges from Amazon Inc. and close the sale of assets to Reliance Retail Ventures Ltd., according to the people quoted above.
However, smaller lenders are of the view that more delays in the resolution process could be costly and lead to larger haircuts. Some of these may consider an insolvency plea, the first of the two people quoted above said. Moreover, operational creditors may get impatient if another restructuring plan is invoked. Since these creditors are not bound by any agreement between lenders, an insolvency application could still be filed, this person said.
Ashvin Parekh of Ashvin Parekh Advisory Services sees merit in invoking the June 2019 circular. "If the only problem here is that more time is required to successfully address the problems, then it is appropriate that banks give such time to the borrower."