The rapidly decreasing asset base of the Future group firms is causing concern among Indian lenders, who fear that recovering dues would be difficult.
Future group’s asset base has dwindled in the previous two years as a result of competitor Reliance Retail’s closure and takeover of 947 outlets after Future group’s lease on the premises ended.
Bankers claim they entered bankruptcy court to minimise duplication of legal action and shorten the time spent in court.
“Because the Future group firm is a retail company, there is a very significant danger of business destruction,” a banker stated, “as there will be very little new financial assistance made in the operations.”
“Unlike industrial enterprises, where lenders may sell facilities and buildings in the worst-case scenario of liquidation, a comparable recovery is not achievable in the retail company’s bankruptcy,” the banker added.
Prospective purchasers may show interest in the insurance joint ventures held by Future Enterprises, a publicly traded company, but it will not be enough to repay lenders.
Future Enterprises announced in January that it will sell a quarter of its stake in Future Generali India Insurance Company to its Italian partner Generali Group for Rs 1,253 crore.
The money was used to assist pay off the company’s debt.
Future Enterprises retained a 25% ownership in the general insurance firm after the sale, which the lenders might sell to recoup their losses.
Generali also has a 68 percent ownership in Future Generali India Life, which will increase to 71 percent by the end of 2022 if Generali continues to subscribe for shares.
Future Enterprises will be in charge of the remainder.
“The IBC (insolvency and bankruptcy legislation) is only helpful for asset-heavy enterprises, and value would be restored after settlement.”
“But nothing like this is achievable in a retail firm with only a few outlets,” a financier connected to the project said.
The failure of Future Group’s businesses would result in the wealth of its stockholders being completely wiped out.
Amazon, the world’s largest retailer, is a major shareholder in Future Retail, having invested in Future Coupon, a promoter organisation.
On Monday, Future Retail’s stock dropped 5% as concerned investors liquidated Future group shares, thinking that the National Company Legislation Tribunal would accept the applications submitted by various lenders under the bankruptcy law, resulting in zero returns.
On Monday, the stock market plummeted for all Future group firms.
While the Corona outbreak devastated Future Group’s offline retail locations, bankers believed the company was displaying symptoms of stress.
Future Group raised cash at the promoter entity level in 2019, with total debt for the four primary promoter holding companies reaching Rs 11,970 crore ($ 1.58 billion) as of March 2019.
Because the promoters had pledged their shares to private equity companies, the company’s stock price plummeted when lenders confiscated and liquidated the company’s shares after it defaulted.
The Future group raised Rs 4,620 crore between April and December 2019 through a mix of loan, stock, and share sales.
Blackstone, a private equity firm, spent Rs 1,750 crore in Future Lifestyle Fashion to acquire a minority share.
Amazon, the world’s largest retailer, invested Rs 1,430 crore in Future Retail’s promoter firm, Future Coupon. Future Coupon had owned a 50% interest in Future Retail, but its holdings have dwindled in recent years as lenders have sold pledged shares.