Explained: Why has Reliance called off Future Retail takeover proposal?

On Friday, secured lenders rejected Future Retail Limited’s (FRL) Rs 24,713 crore deal to sell its assets to Reliance Retail Ventures Ltd (RRVL), a subsidiary of RIL.

“The shareholders and unsecured creditors of FRL have voted in favour of the scheme. But the secured creditors of FRL have voted against the scheme. In view thereof, the subject scheme of arrangement cannot be implemented,” RIL said in a regulatory filing.

According to an exchange filing, in the secured creditors e-voting, 69.29 per cent of the votes of 11 lenders were against the proposal to sell the assets to the RIL subsidiary. However, 30.71 per cent of the votes of 34 lenders favoured the sale of assets.

However, 78.22 per cent of FRL’s unsecured creditors voted in favour of the proposal, the company said in a regulatory update. In the shareholders meeting, 85.94 per cent of the votes supported the sale of assets to RIL and 14.05 per cent of votes were against the proposal.

Future group owns retail chains including Big Bazaar, Food Bazaar, FBB, HomeTown, Central and Brand Factory.

Why banks were not in favour of the deal?

Some leading banks were not in favour of the proposal stating there’s ambiguity on debt recovery. “If top banks are opposing the sale to RIL, the deal is likely to fall through. The next option is to take the IBC route,” said a banking source.

Banks are now expected to move the bankruptcy court for a resolution plan. While FRL has proposed that over Rs 12,000 crore debt will be transferred to RIL, banks are not convinced about it.

In February, Reliance began taking over the rental leases of hundreds of stores once run by FRL and Future Lifestyle Fashions Ltd amid lawsuits and arbitration across India and Singapore.

Banks have already questioned the RIL takeover of some of the Future stores and stated that anybody dealing in the company’s assets should keep in mind that these are subject at all times to the charge of the lenders.

Amazon’s opposition to the Future-Reliance deal

US online retail giant Amazon has opposed the FRL’s deal with RRVL. Last week, Amazon had said the meetings were “illegal” and such a step would not only breach the 2019 agreements when it made investments into FRL’s promoter firm but also violate a Singapore arbitral tribunal’s injunction on the sale of retail assets to Reliance.

FRL had rejected the Amazon’s allegations and said the meetings are “in compliance” with the directions issued by the NCLT on February 28, 2022, to consider and approve the Scheme of Arrangement filed by various entities which are part of the deal.

In a regulatory update on April 16, FRL said “the said order has been issued by the NCLT, after considering all the facts and information submitted by the parties and specific objections filed by Amazon.Com NV Investment Holdings LLC vide an intervening application and the order dated February 15, 2022 issued by Supreme Court on the same subject matter”.

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Why this could be a setback for Future group?

Future group has been defaulting on repayment since last year. On April 1, Future Retail said it failed to infuse Rs 3,900 crore by way of equity in the company before the due date of March 31, 2022.

Further, considering the infusion of capital, there was an obligation on the company to pay an aggregate amount of Rs 5,322.32 crore — as defined in the one-time restructuring (OTR) plan — to various consortium banks and lenders before March 31, the company said in an exchange filing.