RIL: future lenders await RIL’s debt distribution plan

With less than a week left to vote on the plan, Future Retail Ltd’s creditors have yet to receive a plan detailing the distribution of proceeds from the proposed downside sale of the group’s assets to entities linked to Reliance, said three people with knowledge of the matter.

The distribution plan would specify the amount of debt – currently on the books of Future Group – that would be absorbed by the Reliance entities and the amount that would remain with Future Enterprises (FEL). Shareholders and creditors are due to vote on the plan on April 20 and 21, respectively.

The scheme which contemplates a multi-step sale of Future Group’s assets to Reliance-related entities will be approved if at least 51% of creditors by value present at the meeting vote in favor.

Future Retail and Reliance Industries did not respond to requests for comment.

The outstanding loans of the 19 Future Group companies involved in this deal are estimated at just over Rs 25,000 crore.

A distribution plan approved by Reliance Group will be essential for lenders to decide whether or not to vote for the program, a bank executive said. If a significant portion of the outstanding loan is absorbed by Reliance, lenders would be willing to vote in favor of the program. Conversely, they would be reluctant if a large portion of the loan remained on FEL’s books.

This is mainly because Reliance Industries is a “AAA” rated entity that reassures lenders of timely payment of their dues, while FEL, which would be a front company after a dwindling sale, has an undesirable rating.

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Creditors are worried about recovering their dues, especially after Reliance took over 835 Future Retail stores a few months ago, citing non-payment of rental fees. The Future Group has 1,500 points of sale.

Store inventory was the main asset pledged to domestic lenders, while furniture and fixtures were pledged to foreign bondholders. With Future Group promoter Kishore Biyani no longer controlling half of revenue-generating stores, prospects for a recovery look bleak, one of the people quoted above said.

The vote on the program is expected amid lenders seeking to recover their rights in bankruptcy court against Future Retail, the flagship company of Biyani’s Future group, and a warning from Amazon that holding the shareholders’ meeting creditors and shareholders would be in breach of the Singapore International Injunction Arbitration Center (SIAC) over the sale of business assets to Reliance. However, the vote on the program is expected after Supreme Court approval, Future said in a statement last week.

Without a distribution plan, lenders are unable to seek board approval on whether or not to vote in favor of the Future-Reliance deal on Thursday, the bank’s executive said. Cited above.

Lenders will meet soon to decide whether or not to seek a 14-day extension from the National Company Law Tribunal (NCLT) to vote on the program in hopes that Reliance will submit a plan.

The Rs 24,713 crore plan of arrangement was signed between Future Retail and Reliance Industries in August 2020, but the deal is stalled due to legal challenges brought by Amazon.

The e-commerce giant has alleged that under the terms of its investment in Future Coupons in 2019, the promoter does not have the right to sell its stake to Reliance entities.

As part of the arrangement, Reliance would assume debt of Rs 18,383 crore owed to Future Group lenders and trade creditors’ debts on its books.

The deal stipulated that Future Group would first merge 19 of its businesses, including logistics, warehousing, retail and wholesale into Future Enterprises. Subsequently, the logistics and warehousing business would be sold to Reliance Retail Ventures Ltd and the retail and wholesale business to Reliance Retail & Fashion Lifestyle Ltd.

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