future retail: Bankers decide to refer Future Retail to NCLT

Lenders led by Bank of India last week decided to refer Future Retail Ltd (FRL) to the National Company Law Tribunal (NCLT) for insolvency proceedings over recovery of dues, said two people aware of the development, a move that could further hinder the sale of retail assets to a unit of Reliance Industries Ltd (RIL).

The lenders have invited financial and technical bids from insolvency professionals (IPs) by March 29. This will be followed by a presentation from shortlisted IPs, said the people cited above. Grant Thornton, PwC, Alvarez & Marsal, KPMG, BDO India, EY and Deloitte are likely to bid for the mandate, one of the persons said.

The move comes within a week of CSB Bank, owned by billionaire Prem Watsa’s Fairfax Group, approaching the Debt Recovery Tribunal (DRT) to seek payment of more than ₹2.5 crore in unsecured debt from FRL and Future Enterprises.

To Take Sarfaesi Route Too

A hearing is scheduled for April 11.

The banks will also pursue recovery under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, which allows lenders to auction mortgaged properties, said one of the persons cited.

FRL didn’t respond to queries.

EY is currently financial advisor to the Future Group and played a key role in putting together a one-time restructuring (OTR) package last April for all group entities hit by Covid-19. While implementing the OTR, lenders had appointed Deloitte as agency for specialised monitoring (ASM) of cash flows at all Future companies.

It takes a minimum six months to admit a company into insolvency proceedings despite the 14-day limit prescribed by the law. If this happens, the deal with Reliance may be impacted as other potential buyers will get an opportunity to bid, said a third person.

A Rs 3,595 crore default in January as per the terms of the OTR scheme is one of the key triggers that prompted lenders to consider insolvency proceedings, said the first person cited. The other factors were uncertainty about the quantum of recovery after Reliance Industries-linked companies took control of over 900 Future Retail stores a month ago over non-payment of rentals, the person said.

Lenders have also lost patience at the delay in implementing the Rs 24,713 crore, multistage asset sale deal between Kishore Biyani‘s Future Group and Reliance Industries signed in August 2020, the second person said.

The deal hasn’t yet closed due to a protracted legal battle between Future Retail and Amazon. The US ecommerce major has alleged breach of shareholder contract between itself and Future Coupons Pvt. Ltd (FCPL) in the proposed sale of assets to Reliance Retail. Amazon is seeking to block the deal and has argued that its prior agreement with FCPL bars Future Retail from selling its assets to Reliance entities.

The decision to seek recovery through the insolvency route comes ahead of an April 20 meeting when lenders are to vote on the scheme of arrangement between Future Group companies and Reliance-linked companies. Future has Rs 17,500 crore of debt–a domestic component of Rs 13,800 crore from 27 lenders and Rs 3,700 crore in the form of overseas bonds. The company had raised 5.6% secured $500 million in bonds due in 2025 in January last year.