The Future – Reliance Deal Is Dead. Long Live The Deal.

Banks voted against the deal reportedly for reasons ranging from lack of clarity on final consideration, to preferential treatment to bondholders. Maybe they also wanted to send Ambani a message—that the surreptitious takeover of stores is not acceptable.

In any other circumstances, it would have been a powerful message and a rare one. Over a dozen banks, public and private, voting against a deal with the country’s most powerful businessman.

But now that vote is akin to closing the barn door after the horses, or at least half of them, have escaped.

There was a time value to the Future-Reliance transaction. Sure, Biyani built good assets and brands over the past decade, but Ambani is building an equivalent every year. For instance, before the pandemic, Future Group had some 2,000 retail stores. Between April and December 2021, Reliance Retail added 1,750 stores to reach a total of 14,412. Assuming a thousand of those are erstwhile Future stores, Reliance Retail will yet organically achieve in a few quarters what the Future deal would have given it.

Some of that time value was killed by the Amazon litigation. The rest the banks have decided to fritter away by pushing the resolution out further.

After a failed debt restructuring, then a failed deal and half the stores gone, banks now seem to be betting on the insolvency process for the flagship Future Retail.

Maybe they are hoping Reliance will come back for the remaining half. Or other retailers will show interest.

That will depend on:

→ How many stores Future Group can keep operational, which may need more funding;

→ Whether the banks can club all the Future Group retail, wholesale, logistics, warehousing assets under insolvency, like was done in the Future- Reliance scheme;

→ Whether they intend to enforce their security for the stores lost—by pursuing Reliance for stock, shelves and fixtures.

→ The time taken to do achieve all this.

An insolvency process will push out the Biyanis. It will also leave Amazon out in the cold. Narrowing the competitive field for Reliance.

Banks might have stood a better and quicker chance at business and loan recovery had they voted in favour of the deal and appealed to Reliance’s better instincts to honour as much of the original transaction as possible. The ugly public relations fallout that always accompanies PSU bank haircuts may have offered some soft leverage.

Now banks have none. And they have yet to explain how they slept through the transfer of leases of almost a 1,000 stores underlying their security.