Lenders worry as troubled Future group works to keep payment deadlines

Group's financial metrics may deteriorate further in June quarter due to second wave

Lenders are worried over the Future group’s debt repayment plan after it made huge losses in the financial year 2021 and its merger deal with Reliance Retail (RRL) was stalled by Amazon in the Supreme Court.
 
The lockdown in the first quarter of the current financial year has made things worse for the group companies.
 
The Future group has already availed debt moratorium under the Covid package announced last year and the group is likely to miss the loan repayment timelines, fear lenders. Though the group is trying its best to avoid a default to its secured bond holders, the sagging financial metrics is leading to a lot of concern, said a source close to the development.
 
“The group is working on a plan to repay its secured bond holders. But we are keeping our fingers crossed,” said a banker.
 
An email sent to the Future group did not elicit any response.
 
A senior public sector bank official said as the Future group companies are restructured loan accounts, their follow ups and monitoring are much more intense. Also, after the recast, group companies had to face the effects of the second wave. “We have started conversations with the group to understand the implications of the Supreme Court verdict and factor in the effects of the second wave lockdown,” the official said.
 
Bankers said the promoters of Future group have pledged their entire stake with the banks. For example, the promoters’ entire 34.83 per cent stake in Future Enterprises has been pledged and due to falling market capitalisation and rising debt, banks sought additional cover from them.

“But due to the absence of any additional cover provided by the promoters, a significant chunk of pledged shares has been invoked in Future Enterprises,” said the source.
 
As on Wednesday, Future Enterprises (FEL) was trading at Rs 8 per share with a market value of only Rs 440 crore. Similarly, in Future Retail, the promoters’ stake was down to 19.8 per cent in the June quarter from 28 per cent as on December 31 last year.
 
According to an announcement made by the Future group and Reliance Retail in August last year, all Future group companies were to merge into Future Enterprises and the businesses of the merged entity were to be transferred to RRL. This meant that RRL would have taken over all of Future’s businesses and liabilities.
 
But with the merger proposal almost stalled due to litigation with Amazon, the chances of a deal revival are now remote at a time when sales of the Future group have almost crashed compared to last year, bankers said.
 
In the case of FEL, due to the lockdown imposed in March last year, the company could not liquidate its inventory and realise its existing debtors, thereby leading to a longer operating cycle. Furthermore, the extension of lockdown till May 2020 led to a significant deterioration in FEL customers’ liquidity profile. “Despite debt restructuring being approved by the lenders last year, there is a serious question whether Future group companies will be able to meet the new deadlines,” the banker said.
 
According to a CARE Ratings statement in April this year, Future Enterprise’s liquidity profile has been severely impacted on account of lockdown measures and weakened credit profile of its key customer, Future Retail.
 
Future Retail and Future Lifestyle Fashion are also facing severe liquidity stress. “The inability of FEL to realise its debtors during the pandemic and shut down operations during Q1 of FY21 led to a cash crunch, increase in debtor days and subsequently default on its debt service obligations. There have been substantial delays in receipt from group entities and subsequent receipts have not been significant,” CARE had said in April.