RIL-Future deal: Lenders worried over big hair-cuts, IBC option open

With a shadow caste on the Reliance Retail-Future Retail merger deal, lenders are apprehensive about the debt-servicing capacity of the Kishore Biyani-owned company.

There is concern over a bigger hair cut on restructured loans. Option to take the Future group company to bankruptcy court is also on the table. 

Bankers said the loans to Future Retail were restructured last year after it was adversely impacted by a severe economic shock from the Covid pandemic. Retail entity’s cash flows have been hit, and if the merger deal does not go through, the working of restructuring would be under strain.

Banks would monitor steps Future promoters take and assess implications for the financial profile. The fear is that banks may have to take larger haircuts than envisaged earlier, they said.

Future Retail has completed the one-time restructuring of its onshore debt (about Rs 10,200 crore) that includes extending the maturity of its term loans and other borrowings. The restructuring has been approved under the resolution framework. The group’s debt exposure is more than Rs 20,000 crore, a senior public sector bank executive said. 

Future Retail's existing long-term debt obligations (term loans and non-convertible debentures) will be extended from their original schedule by 18-24 months at existing interest rates. The term loans will now be repayable starting December 2021 and the non-convertible debentures will be repayable on June 30, 2025.

Overdues under its short-term working capital borrowings (including interest) will also be converted into working capital term loans and funded interest term loans to be repaid from December 2021. The company will have no interest and principal payments due on the restructured debt until September 2021.

Option to take the Future group company to bankruptcy court is also on the table.