Future Group's Top Three Lenders Said To Reject Sale To Reliance

Top lenders to Future Group reject Reliance Retail deal.

Kishore Biyani, chief executive officer of Future Group, at an inauguration in Nagpur, India. (Photographer: Dhiraj Singh/Bloomberg)
Kishore Biyani, chief executive officer of Future Group, at an inauguration in Nagpur, India. (Photographer: Dhiraj Singh/Bloomberg)

State Bank of India, Bank of India and Union Bank of India have not approved a scheme that would have allowed Future Group to sell its retail and logistics businesses to Reliance Retail Ventures Ltd., three people with direct knowledge of the matter said.

According to a senior public sector banker, the first of the three persons cited above, since the top lenders have declined to approve the scheme, most other lenders are also likely to have voted against it. Though BloombergQuint was not able to confirm that.

By law, at least 75% of the lenders by value are required to vote in favour of a scheme for it to be approved.

It is not clear whether the rejection by the three major lenders has resulted in Future Group entities failing to meet this threshold. The results of the vote will be disclosed to the stock exchanges later this week.

All the three people cited earlier spoke on the condition of anonymity as voting details are not public yet. Queries emailed to Future Group, SBI, Bank of India and Union Bank of India on Thursday did not elicit responses.

Over the last few days, the Kishore Biyani-led group has been holding discussions with lenders to get their approval for the deal, which was originally announced in August 2020. On Wednesday, Future Group companies sought approvals from their shareholders on the deal, subject to the same threshold of approval, while on Thursday, lenders were to give their say on the matter.

What Went Wrong?

The lenders did not approve the scheme as they did not have adequate clarity on the level of haircut they will have to take against their Rs 30,000-crore exposure to Future Group, the three people said.

Lenders also did not get a satisfactory response regarding the 835 Future Retail stores which were taken over by Reliance Industries Ltd.'s subsidiary in March. On April 18, SBI wrote a letter seeking an explanation from Future Retail about the steps it had taken to recover these stores.

During negotiations, lenders sought information about the value that Reliance Retail Ventures Ltd. will pay for Future Group's assets. When the deal was announced nearly two years ago, lenders were assured that about 40% of the outstanding Future Group loans would be transferred to Mukesh Ambani-controlled companies, while another 20% would be paid to the lenders in cash, the banker quoted above said.

However, since that announcement, Future Group's businesses have faced severe losses owing to the Covid-19 pandemic and the related restrictions. Additionally, legal challenges mounted by Amazon Inc. have delayed the sale, further squeezing financials of Future Group companies.

Reliance had been providing working capital support to Future Group stores to ensure that the business remains functional. However, the Ambani-led group's decision to take over leases of 835 Future Retail and 112 Future Lifestyle Fashion Ltd. outlets has left lenders unsure of the path the buyer was taking.

According to the public sector banker quoted above, lenders were told that Reliance would be adjusting the amount it had spent on keeping Future Group stores open against what it would pay for the transaction. To be sure, no representative from Reliance was present during the negotiations. Neither has the buyer provided any written or verbal commitment regarding the value it would pay, the banker said.

Most large lenders to Future Group companies have started classifying the flagship Future Retail as a non-performing asset. This came after a one-time restructuring scheme implemented by the lenders last year, failed.

Bank of India, the lead lender to Future Retail, has already filed an insolvency petition against the company at the National Company Law Tribunal. While lenders have been avoiding the insolvency option so far, they will be forced to use it, if all else fails, the second of the three people cited earlier said.