Future Enterprises risks turning NPA by next quarter, say banking experts

Following the footsteps of Future Retail, which turned non-performing asset (NPA), Future Enterprises (FEL) is likely to slip into the bad loan category in the first quarter of FY23 if the company is unable to clear dues using the sale of stake in a general insurance firm.

FEL, which defaulted on payments to lenders and debenture holders in the last week of March, has a 30 day-curation period.

The chances of any improvement in financial position to repay dues are very dim, bankers.

A senior public sector banker said it sold the stake in Future Generali India Insurance Company (Future Generali) and added that proceeds of that deal are to be used to pay dues.

The sale is subject to regulatory nod but there is no certainty about the timeline for approval.

In January 2022, FEL agreed to sell a 25 per cent stake in Future Generali to joint venture partner, Generali Participations Netherlands N V (Generali), for a cash consideration of Rs 1,252.96 crore. There is also an additional consideration that is linked to the date of closing of the transaction.

Another executive with a private bank having exposure to FEL said some payments are due at the end of March. The financial condition is weak. It is likely to become an NPA in the June quarter if repayment does not happen by the end of April.

Rating agency CARE downgraded the rating of FEL’s long-term bank facilities from “C” to “D” and removed it from credit watch with Developing Implications.

The revision factors in delays in the servicing of debt obligations due to continued poor liquidity position leading to reduced cash accruals on account of Covid-19.

There has been a slower-than-anticipated recovery of the business of key customers Future Retail FRL and Future Lifestyle Fashions.

The company was not able to discharge the obligation to pay Rs 93.99 crore to Punjab National Bank and Canara Bank on or before March 23, 2022 (due date). The company has 30 days to pay the amount due to identified bankers / lenders.

FEL’s loans were restructured under Reserve Bank of India’s (RBI's) regulatory package. During FY21, the pandemic had deeply impacted the long-term business viability and led to significant financial stress on the business.

Future Retail is locked in a legal battle with US retail giant Amazon and has already become an NPA in the current quarter. Lenders to FRL are preparing ground to initiate recoveries at the 

Debt Recovery Tribunal (DRT) and will also approach National Company Law Tribunal (NCLT) for bankruptcy and insolvency proceedings.