Future lenders in a fix over recoveries
PremiumLenders of FRL may keep the asset sale proposal on hold and may act only as per advice of legal counsel
MUMBAI : Future Group’s lenders on Sunday agreed to halt the sale of Future Retail Ltd’s (FRL) small-format stores until the Supreme Court gives its verdict in a case between Amazon.com Inc. and the founders of Future Group over the latter’s sale of assets to Reliance Industries Ltd, two people familiar with the discussions said.
“The lead banks, including Bank of India, State Bank of India and Barclays, of FRL had an emergency meeting on Sunday and decided to take legal opinion on the asset sale plan before proceeding with any valuation process for the assets of FRL’s small-format stores such as Easyday Club and Heritage Fresh," one of the two people said, requesting anonymity.
Future, Amazon and spokespeople from SBI, Bank of India and Barclays did not reply to emails sent by Mint.
The founders of FRL, which missed a payment to its lenders, need the cash from a ₹24,713 crore deal it has entered with Mukesh Ambani’s Reliance Industries Ltd to repay banks. However, a Singapore arbitral tribunal has blocked the sale on Amazon’s complaint that a 2019 transaction with the founders of Future Group barred FRL from selling its assets to entities, including Reliance Industries, without the consent of the e-commerce giant. The Supreme Court is hearing the case.
In the emergency meeting, FRL’s lenders discussed the one-time restructuring, under which only movable assets and fixtures (inventory of laptops, cameras, etc.,) of the small stores can be auctioned if the banks decide to enforce their recovery rights following FRL’s ₹3,500 crore repayment default.
“The problem is that these items won’t fetch enough money to cover even one instalment of the loan," said the person. “The second problem is that the Singapore tribunal’s order restrains Future Group from taking any step to dispose of any part of FRL’s assets without Amazon’s prior consent or court orders. And now, the Supreme Court has not only held that the tribunal has the authority to pass an order in this matter, but also has agreed to admit Amazon’s petition against the Delhi high court division bench’s order, which stayed the arbitral tribunal proceedings".
The hearing of the matter is listed for 23 February.
“This means FRL assets are subject to the injunction at the moment, and the matter on FRL’s asset sale by lenders or any entity is sub-judice pending the SC judgement," said the first person.
MINT PREMIUM See All
This means there is a fair chance of the Singapore International Arbitration Centre resuming its hearing on the matter, and if any asset sale process is initiated now by lenders, its implementation will depend on SIAC’s final verdict or any subsequent judgement by an Indian court, according to the two people.
“That’s why the asset sale committee of the banks are in a dilemma. On the one hand, if FRL’s loan is classified as a non-performing asset (NPA), it may end up at an insolvency court, and on the other hand, if the loans are not to be classified as NPA, the one-time restructuring scheme has to be enforced, which may be legally complicated against the backdrop of pending court verdicts. The lenders want to avoid getting into any legal tussle as they are not sure whether it will be a legitimate decision to take over FRL’s assets. That’s why they have decided to seek legal opinion on the asset sale proposal," said the first person.
This means the proposed sale of Kishore Biyani’s small store formats is unlikely to be carried out by FRL’s lenders, at least until the top court gives its final verdict and, therefore, the lenders may be required to find a new way to keep FRL’s assets away from being classified as NPAs so that the firm doesn’t land up in insolvency court, said the first person.
Since consultant Alvarez and Marshal and SBI Capital Markets are acting on behalf of the lenders for the RIL-Future scheme of arrangement, it was decided by the lenders to give SBI Caps the additional scope of sale transaction of FRL’s small format business, the people cited above said.
But now, lenders of FRL will keep the asset sale proposal on hold and will act only as per advice of the legal counsel, which the asset sale panel shall appoint, said the first person.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!