RIL: Future lenders await RIL’s debt distribution plan

With less than a week left to vote on the scheme, creditors of Future Retail Ltd have not yet received a plan spelling out the distribution of the proceeds from the proposed slump sale of the group’s assets to Reliance-linked entities, said three people aware of the matter.

The distribution plan would spell out the quantum of debt — currently on the books of the Future Group — that would be absorbed by Reliance entities and the amount which will stay with Future Enterprises (FEL). Shareholders and creditors are scheduled to vote on the scheme on April 20 and April 21, respectively.

The scheme which envisages a multi-stage sale of Future Group’s assets to Reliance-linked entities will be approved if at least 51% of the creditors by value present during the meeting vote in its favour.

Future Retail and Reliance Industries did not respond to requests for comment.

The outstanding loans of the 19 Future Group companies involved in this deal are estimated to be a little over Rs 25,000 crore.

A distribution plan endorsed by Reliance Group will be critical for lenders to decide on whether to vote in favour of the scheme, said a bank executive. If a significant share of the outstanding loan is absorbed by Reliance, lenders would be amenable to voting in favour of the scheme. Conversely, they would be reluctant if a large portion of the loan remains on FEL’s books.

This is mainly because Reliance Industries is an ‘AAA’-rated entity that gives lenders comfort on timely payment of their dues, while FEL, which would be a shell company after slump sale, has a junk rating.

Creditors are apprehensive about recovering their dues, particularly after Reliance took control of 835 of Future Retail stores a couple of months ago citing non-payment of rental dues. The Future Group has 1,500 outlets.

The inventories in the stores were the key assets pledged with domestic lenders while furniture and fixtures were pledged with offshore bondholders. With Future Group promoter Kishore Biyani no longer in control of half the stores that generate revenues, recovery prospects appears dim, said one of the persons cited above.

The voting on the scheme is scheduled amid lenders seeking recovery of their dues in the bankruptcy court against Future Retail, the flagship company of Biyani’s Future Group, and a warning from Amazon that holding the creditors and shareholders meeting would be in violation of the Singapore International Arbitration Centre’s (SIAC) injunction on the sale of retail assets to Reliance. However, voting on the scheme has been scheduled after approval from the Supreme Court, Future said in a statement last week.

In the absence of a distribution plan, lenders are unable to seek board approval on whether to vote in favour of the Future-Reliance deal on Thursday, said the bank executive cited above.

Lenders will meet soon to decide on whether to seek a 14-day extension from the National Company Law Tribunal (NCLT) to vote on the scheme in the hope of Reliance submitting a plan.

The Rs 24,713-crore scheme of arrangement was signed between Future Retail and Reliance Industries in August 2020 but the deal is stuck due to legal challenges posed by Amazon.

The ecommerce giant has alleged that as per the terms of its investment in Future Coupons in 2019, the promoter is barred from selling his stake to Reliance entities.

Under the scheme of the arrangement, Reliance would take over a debt of Rs 18,383 crore due to Future Group’s lenders and trade creditors’ liabilities in its books.

The agreement stipulated that Future Group will first merge 19 of its businesses including logistics, warehousing, retail and wholesale units into Future Enterprises. Thereafter, the logistics and warehousing businesses would be sold to Reliance Retail Ventures Ltd and the retail and wholesale businesses to Reliance Retail & Fashion Lifestyle Ltd.