Future Group Defaults on Rs.3,494 Crore Loan Payment

Future Retail, part of the Future group, has defaulted on a repayment obligation of Rs.3,494 crore as of 31-December. This payment was due as part of a one-time debt recast offered by banks. Post the default, CARE Ratings has downgraded the debt of Future Retail to Default status. Future group has blamed the dilatory actions of Amazon for this default.

It may be recollected that Future group and Reliance Retail had entered into a Rs.24,713 crore merger deal wherein RRVL would acquire the retail and wholesale franchise of the Future group. However, Amazon had dragged Future group to court since this deal was in contravention of the undertaking given to Amazon while buying a stake in Future Coupons.

Amazon owns 49% in Future Coupons, which gives it an indirect stake in Future Retail. Amazon has held on to its contention that the deal had prevented Future group from entering into a deal with any retail competitor of Amazon. In such cases, the right of first refusal (ROFR) had to be given to Amazon. Future group has denied any such clause.

As a result of this default by Future Retail on 31-December, CARE had immediately downgraded the NCDs issued by Future Retail as well as its long term and short term banking facilities to Default Grade (Care-D). More so, because this was part of the one-time restructuring commitment given to the consortium of banks and lenders.

Future group has justified the default on the grounds that it could not monetize its assets and franchise on time due to the prolonged legal wrangles created by Amazon. However, this may not help the case much as the time and patience of most of the banks may gradually be running out. So, what are the next steps?

Normally, in the event of a borrower defaulting on a one-time restructuring obligation, there is a 30-day review period that is offered effective from the due date to pay lenders. If at the end of 30 days, the Future group is still in default, then banks will have to classify the account as non-performing asset and eventually make provisions up to 25% immediately.

In another development, the deal between Amazon and Future Coupons is already under a cloud and it is expected to be suspended as it has emerged that Amazon got the approvals by misrepresenting facts. But for the banks and for the Future group, time is surely running out fast.