There is no dearth of uncertainty in the fate of the Kishore Biyani-promoted Future Group. Caught in a mountain of debt, its flagship, Future Retail as also Future Lifestyle Fashions, among other group companies, face an uncertain future as the next stop appears to be the insolvency courts.
A deal struck in August 2020 had Reliance Retail agreeing to buy out the wholesale, retail and logistics businesses of Future Group in a Rs 24,713-crore ($3.4 billion) deal. The beleaguered seller could not have asked for anything better since it allowed him to emerge from a deep hole. It is this deal that now has as much as 69 per cent of the flagship, Future Retail’s unsecured creditors, rejecting it.
The acquisition was already in the midst of a huge controversy as Seattle-based e-commerce giant, Amazon objected to it. The company, in mid-2019, had acquired a 49 per cent stake in Future Coupons, an unlisted entity, giving it an indirect 4.81 per cent holding in Future Retail Limited (FRL), the entity that houses BigBazaar, FBB, Easyday and Heritage. Given the restrictions on FDI in Indian retail, the deal with Future Coupons was expected to lead to control over FRL as and when regulations eased up. With Reliance now out of the picture at a critical juncture, how the story will play out is intriguing for several reasons.
Earlier this year, in a startling move, Reliance took charge of 835 stores across FRL’s formats. The background relates to Future’s difficult financial position, which had them struggling to pay rentals. At that point, about a year ago, Reliance sub-leased the stores to Future. Once Future began to slip up on rental payments, Reliance was terminated the sub-leases and took charge of the stores. Without its key asset or the retail stores, there is little that remains attractive to a potential investor in the company.
As the possession of FRL moves to the National Company Law Tribunal (NCLT), with the objective of initiating resolution proceedings under the Insolvency and Bankruptcy Code (IBC), the company’s future remains at best unknown. Shareholder wealth stands eroded as banks too do not know how much of the $4 billion debt will come back. Avanti T. Chandele, Partner, Mind Legal, says the next battle will be fought in NCLT. “Amazon and Reliance may try and bid for the company now in the insolvency process in accordance with the applicable procedure,” she said. With the key stores in Reliance’s possession, how this plays out will be interesting.
Insolvency resolution professional Vivek Parti points out that “with the secured creditors, primarily the public sector banks, having rejected the scheme of arrangement proposed by Reliance and with the key assets, being the retail stores, now with them, one-time settlement may have issue of justification by the banks.” That really means going to the IBC seems like the only option. According to him, it is necessary for the banks to fight it out. “Else they will get nothing. Without the retail assets, very little is left of the Future Group barring the insurance business (the joint venture partner here is Italy’s Generali group) and small parts of logistics and manufacturing.” By the looks of it, this story is not going to end in a hurry.
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