Mumbai: A group of 28 lenders to Future Retail Ltd has approved a debt recast proposal, and allowed it to extend the loan repayment period by up to two years, subject to approval by a central bank committee, the company said.
“The said resolution plan, which remains subject to the approval of the expert committee, under the chairmanship of the K.V. Kamath, constituted by the Reserve Bank of India (RBI), has been approved by the lenders to the existing debt of the company,” it said in a late evening statement to the stock exchanges, adding that the company’s board has also approved the plan.
Future Retail’s lenders include Union Bank of India, Bank of India, Bank of Baroda, State Bank of India, Indian Bank, Central Bank, Axis Bank, and IDBI Bank. Future Retail owes banks Rs6,278 crore, showed data from Care Ratings. On an aggregate basis, the Future Group owes around $3 billion in loans and lenders are trying to figure out a way to ensure the least possible hit on asset quality.
The group also owes mutual funds that had invested in securities sold by group entities, including Rivaaz Trade Ventures, NuFuture Digital India and Future Ideas Co. For Indian banks, with bad loans of Rs7.38 trillion, a soured asset of that size will only make matters worse.
The company said that it opted to restructure loans under RBI’s 6 August circular as the pandemic deeply impacted the long-term business viability and led to significant financial stress across industries. The debt burden, it said, has become disproportionate relative to the cash flow generated by the company, owing to the multiple lockdowns since the pandemic surfaced.
To be sure, covid-19 has made a comeback now as have state-specific lockdowns and restrictions, threatening to dislodge emerging signs of economic recovery. While downplaying the impact of the second wave, bankers are still concerned that restrictions will hurt the movement of goods and services, affecting repayment capabilities.
Other features of the recast include an interest moratorium between 1 March 2020 and 30 September 2021. Interest during this period will be converted into funded interest term loan (FITL), payable by December 2021. FITL is a fresh loan that helps stressed borrowers repay existing interest over time and is used in most deep recasts. That apart, all penal interest and charges, default premiums, processing fees unpaid since March 2020 till implementation will be fully waived. The deadline to implement this scheme is 26 April, the company said.
Debt raised through non-convertible debentures (NCDs) issued by the company will also come under the recast scheme and the company said it has received written consents from all bondholders. Under the resolution plan, redemption of three separate NCD series will be rescheduled between FY23 and FY25, without any change in interest rate. Vistra ITCL (India) Ltd and CentBank Financial Services Ltd are debenture trustees to these bonds, it said.
“It may be noted that 5.6% US Senior Secured notes 2025 issued by the company and non-convertible debentures issued by the company to certain trusts are not part of the resolution plan,” it said.
Reliance Retail Ventures had entered into an arrangement last August to buy Future Group’s retail assets on a slump sale basis. However, the deal is stuck in a legal quagmire as e-commerce behemoth Amazon contests the sale. The deal is pending before the Supreme Court and is scheduled to be heard on 27 April. Mint reported on 12 April that lenders to Future Retail Ltd are hopeful of approving a debt recast plan by the end of this month, with the final draft being circulated among bankers for approval.