Future group bankers may take 40% haircut even after key biz sale to RIL

Apart from debt at the company’s level, there is a significant debt at the founder group level which rose to Rs 11,790 crore in March 2018 to Rs 11,970 crore in March 2019 despite monetization efforts.
The lenders to Future Group companies are expected to take a 40 per cent haircut on their exposure to the group even after the company’s main businesses are sold to Reliance Industries (RIL). Though the banks have been offered the real estate of Future Group companies, it will take some time for the banks to recover Rs 13,000-crore dues.

According to a plan negotiated between Kishore Biyani, promoter of Future Group, Indian lenders and RIL, the banks will have to wait till RIL invests money in Future Enterprises after three other group companies are merged into it. 

“By the time the merger process is over, it will take at least six more months, and banks will have to wait till then. RIL will invest after the merger, and banks will then get around Rs 8,500 crore,” said the source.

Future Enterprises’ board may discuss the merger proposal on Saturday. According to the plan, three group firms of the Future Group — Future Lifestyle, Future Supply Chain Solutions, and Future Retail — will be merged into Future Enterprises. Once the process is over, RIL will invest in the merged entity, taking 50 per cent in the company. 

The banks hold the pledge over Biyani’s entire stake and are calling the shots during the ongoing negotiations, another source said. As value of Future’s shares were eroded during the lockdown, the banks have expedited the sale of shares to RIL.

Apart from debt at the company’s level, there is a huge debt at the founder group level, which rose to Rs 11,790 crore in March 2018 to Rs 11,970 crore in March 2019 despite monetisation efforts.

The group had raised Rs 4,620 crore between April and December of 2019 through a mix of debt, equity, and stake sales. Of this, Rs 1,750 crore was invested by Blackstone and Rs 1,430 crore was invested by Amazon. Of the proceeds, Rs 1,440 crore has been ploughed back in Future Retail. 

While it is good news for banks that 80 per cent of the borrowings at the holding company are from private equity firms, for which the collateral cover is much lower than funds borrowed from banks or mutual funds, the cost of funding can be very high. For example, one of Biyani’s holding firms, RCVPL, borrowed Rs 605 crore on July 29 last year and Rs 600 crore on September 30 last year from BTO FPI III Pte. The filing with the MCA for an Rs 1,300-crore charge for these loans put pricing at 26.5 per cent per annum over a four-year term, as per REDD Intelligence. It was this kind of fund raising at very high interest that finally resulted in Biyani defaulting on loans.

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