What happens to Future Retail and the Reliance deal, now that there has been such a big loan default?
Answer
Answer
Future Retail, which had signed a debt recast agreement with the lending banks, has now made a massive default of its obligation of Rs.3,494 crore on 31-December. Immediately after this default, CARE Ratings has downgraded the debt of Future Retail to Default status. This includes the NCDs issued by Future group as well as the short term and long term bank facilities of Future group. Future group has blamed Amazon for this default.
The merger proposal between Future Group and Reliance Retail dates back to August 2020 when both the entities had entered into a Rs.24,713 crore merger deal. As per the terms of the deal, RRVL would acquire the retail and wholesale business of Future group with all the network outlets. However, Amazon dragged Future group to court alleging the deal was in contravention of the undertaking given to Amazon during the Future Coupons buyout.
There is an interesting background here. Amazon owns 49% in Future Coupons, and this stake gives Amazon an indirect stake in Future Retail. Amazon’s contention, which has also been upheld by the Singapore International Arbitration Centre, is that their agreement with FRL prevented Future group from any deal with a retail competitor of Amazon. At least, the right of first refusal (ROFR) was to be given to Amazon. Future group has denied such clause.
Future group explained this loan default on the grounds that it could not monetize assets due to the prolonged legal wrangles created by Amazon. However, that is not going to help the case much as patience is wearing thin for most of the lending banks. The next step is to give FRL 30 days and if Future group is still in default, the account has to be marked as NPA and minimum 25% provision made immediately. That is what banks are fearing.
The deal between Amazon and Future Coupons is under a cloud after the CCI suspended its approval. But, it is not clear if such an approach would stand at the SAIC, which is an arbitrating body for international disputes. While Future Group has alleged that Amazon got approvals by misrepresenting facts, it looks like more of an afterthought. The terms of the Amazon/Coupons deal is a matter of fact and the SAIC decision should hold in this case.