Future retail lenders on the edge before the repayment deadline
MUMBAI : Banks fearing a default have had talks with Future Retail Ltd over concerns that the ailing retailer will not be able to pay its dues on time, said two people familiar with the discussions. Since the loan has already been restructured once, a default would mark it as a recast failure, forcing them to set aside 25% provisions once it goes bad.
According to the sources, who requested anonymity, discussions focused on the road ahead for Future Retail, which is due to pay its first loan due by December 31 after a 19-month moratorium that ended on September 30. If Future Retail fails to make the payment – a scenario banks are bracing for – it would go into default on January 1 and the loan would subsequently be classified as non-performing.
“If the loan goes badly, more provisions would have to be made than a regular non-performing asset (NPA), as that would be considered a restructuring failure according to the RBI guidelines released on August 6,” said one. of the people mentioned above. In such cases, provisions should be made as if the overhaul never happened, he added, forcing banks to classify the account as “doubtful”, requiring at least 25% of provisions thereafter. .
The people named above have said that discussions have not been conclusive so far and that further rounds of discussions will take place between the bankers and with the management of Future Retail.
Future Retail lenders include Union Bank of India, Bank of India, Bank of Baroda, State Bank of India, Indian Bank, Central Bank, Axis Bank and IDBI Bank. According to data from Care Ratings, Future Retail owes banks ??6,278 crores. The Future group owes around $ 3 billion in loans on a global basis.
Under RBI rules, banks must classify APNs into three categories – substandard, questionable, and lossy assets – based on the duration of the default. As bad debts stay longer on a bank’s books, the chances of their being collected also decrease.
Last August, Reliance Retail Ventures Ltd (RRVL), a unit of Reliance Industries Ltd, agreed to purchase the retail assets of Future Group on a discount sale basis for ??24,713 crores. The cash-strapped Future Group is trying to speed up the deal with Reliance to pay off creditors and save the Big Bazaar chain of stores from possible collapse.
“Considering that Reliance Retail supports the operations of Future Retail, a scenario where the deal fails is unimaginable. However, as the legal battle rages on, we fear the company will struggle to repay the first installment on time, “said the person cited above.
Spokesmen for Union Bank of India and Future Retail did not respond to emails seeking comment on the story.
The deal was initially expected to be finalized by March 2021; however, it was pushed back until March 2022 as a legal battle with Amazon erupted. Amazon opposed the sale of Future Group to RIL, citing a violation of its investment agreement with Future Group which prohibited it from selling its assets to other entities. A feud over Future Group assets between two of the world’s richest men – Mukesh Ambani of Reliance and Jeff Bezos of Amazon – has prompted lenders to scramble to collect their loans to the Future Group.
In August 2019, Amazon had purchased a 49% stake in Future Coupons Ltd (which owns 7.3% of the capital of Future Retail through convertible warrants), with the right to purchase the flagship product Future Retail after 3 to 10 years.
Mint reported on November 30 that Amazon.com Inc. and a lobby of at least 15,000 small businesses have written to the markets regulator, demanding the revocation of the conditional approval it has given to the deal so that Future Group sells its retail assets to Reliance. Industries Ltd. The US e-commerce giant and the Confederation of Indian Micro, Small and Medium Enterprises have written two separate letters to the Securities and Exchange Board of India on the matter.
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