Lenders may convert part of Kishore Biyani's Future Retail debt into equity

FRL’s debt as of February was Rs 7,241 crore (excluding acceptances on letters of credit), as against Rs 2,657 crore as of March 31, 2019, according to a Care Ratings statement.
Lenders to Kishore Biyani-led Future Retail (FRL) are considering converting part of its debt into equity before a possible sale to a rival. 

The final decision on the debt restructuring of the company could be taken within a month, as the company will be unable to service its debt once the moratorium on loan repayment ends in August-end, sources in the know said.

FRL’s debt as of February was Rs 7,241 crore (excluding acceptances on letters of credit), as against Rs 2,657 crore as of March 31, 2019, according to a Care Ratings statement.

Reliance Industries (RIL) has initiated talks with FRL lenders, which have the rights over the pledged shares of the promoters — the Biyani family, for a possible takeover. “RIL is not keen to take over the entire debt of FRL and is seeking debt restructuring before the acquisition. Hence, banks plan to convert part of FRL’s debt into equity before any transaction with RIL,” said the source. 

A one-time debt restructuring scheme is being considered for all Covid-19-hit companies. But FRL’s financial metrics had been deteriorating even before the pandemic hit the retail sector.

Another source said Future Group was also in the final leg of selling its two insurance ventures by July end to SBI General Insurance to repay part of its debt. The group is also said to be resisting any deal with RIL. 

FRL had informed the stock exchanges that it had not authorised any other party to carry out any negotiation on its behalf and accordingly there would not be any locus standi of any third party to approach the lenders of the company for any such discussion.

However, sources said discussions were going on between the lenders, Future Group, and RIL. 

“As Future promoters have pledged their entire stake with the banks, the banks will take the final call on the sale to Reliance,” said a source.

RIL did not comment on the issue, while an email sent to FRL did not elicit any response.

RIL is keen to take over Future Retail so as to grow its presence in the offline retailing space. FRL had reported Rs 20,165 crore of sales in fiscal 2019 and Rs 733 crore of profits. For the December 2019 quarter, it had reported Rs 5,129 crore of sales and Rs 170 crore of profits. It has not yet announced the numbers for the quarter ended March this year. 

Sources said RIL wanted to conclude the FRL transaction before inducting a global partner or an investor in its retail business in the next few quarters. RIL then plans to list the retail business. In the recent annual general meeting of RIL’s shareholders, Chairman Mukesh Ambani had indicated that the retail business would be the next growth engine for the company.



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