Future’s lenders said to reject $3.4 bn sale deal with Reliance

Banks cite legal issues dogging proposed transaction as causing erosion of asset value

Lenders’ stand adds to debt-laden Future’s woes as it faces legal challenges to Reliance deal. File | Photo Credit: REUTERS

Future Group's lenders have rejected a $3.4 billion sale of the Indian group's retail assets to Reliance Industries, banking sources said, adding to Future's struggles to pay off debt after it was hit hard by the COVID-19 pandemic.

"All secured lenders have voted against the scheme of arrangement put forward by Reliance," said a senior executive at a state-owned lender.

"Initially we thought that any other alternative methods will result in lower recoveries but since then it (Future) has been entangled in legal issues and now we are unsure of the value left in it," the source said.

The rejection by lenders comes amid a legal challenge by U.S. e-commerce giant Amazon.com Inc which has accused Future of violating certain contracts by dealing with Reliance , run by India's richest man, Mukesh Ambani.

Future has denied any wrongdoing and said it will be pushed to bankruptcy if the deal falls through. The case is being heard at various legal forums, including an arbitration panel in Singapore.

But in February Reliance, which had kept to the sidelines earlier in the dispute, suddenly took control of hundreds of Future stores, citing non-payment of rent, after assuming many of the leases held by cash-strapped Future.

That spooked bankers, some of whom have already initiated debt recovery proceedings against Future.

Future Group as a whole has more than $4 billion in debt and lenders started classifying the loans as non-performing assets (NPA).

Typically, banks which are secured creditors are accorded the highest priority during debt resolution. However, in this case, Reliance in regulatory filings has assured bondholders of full recovery, raising concerns at the lenders.

"The bondholders are getting preferential treatment and that is not something that is palatable to the bankers," said another banker, adding this was a further reason for rejecting the deal.

The yield on Future Retail's bond maturing in January 2025 jumped to a record high of 88.906% on Friday, compared with its close of 37.680% on Wednesday.

Lenders are getting ready for a lengthy battle in bankruptcy court which can take years to resolve, sources said.

Future and Reliance did not respond to requests for comment.