Banks cite legal issues hampering the proposed transaction as causing asset erosion
Banks cite legal issues hampering the proposed transaction as causing asset erosion
Future Group lenders have rejected a sale of the Indian group’s $3.4 billion retail assets to Reliance Industries, bank sources said, fueling Future’s debt-repayment efforts after it was hit by the COVID-19 pandemic had been badly hit.
“All of the secured lenders have voted against Reliance’s proposed Scheme of Arrangement,” said a senior official at a government lender.
“Initially we thought all of the other alternative methods would result in lower recoveries, but since then it (Future) has been mired in legal issues and now we’re not sure what value it has left,” the source said.
The lenders’ denial comes amid a legal challenge by US e-commerce giant Amazon.com Inc, which has accused Future of violating certain contracts by trading with Reliance, owned by India’s richest man, Mukesh Ambani , to be led.
Future has denied any wrongdoing and has said it will be bankrupt if the deal goes through. The case is being heard in various legal forums, including an arbitration tribunal in Singapore.
But in February, Reliance, which had stayed on the sidelines when the dispute began, suddenly took control of hundreds of Future stores, citing non-payment of rent after taking over many of the leases that Future was holding in cash .
That scared off bankers, some of whom have already initiated debt collection proceedings against Future.
The Future Group as a whole has more than $4 billion in debt, and lenders have begun classifying the loans as non-performing assets (NPA).
Typically, banks that are secured creditors are given the highest priority in debt settlement. In this case, however, Reliance has pledged full repayment to bondholders in the regulatory filings, raising concerns among lenders.
“The bondholders are getting preferential treatment and that’s not palatable to the bankers,” said another banker, adding it was another reason the deal was rejected.
The yield on Future Retail’s bond maturing in January 2025 rose to a record high of 88.906% on Friday, compared to its close of 37.680% on Wednesday.
Lenders are bracing for a protracted dispute in bankruptcy court that could take years to resolve, sources said.
Future and Reliance did not respond to requests for comment.
