Future Retail Ltd.
Future Group Advisor EY Shows Lenders Debt Scenarios for Both Reliance Acquisition and One-Time Covid-19 Restructuring
Fri 01/15/2021 07:08 AM
EY India, advisor to Future Group, has given presentations to lenders providing financial details of the proposed INR 247.13B ($3.38 billion) merger and acquisition with Reliance Industries Ltd., and separately, the one-time restructuring (OTR) plans for Future Retail Ltd. and Future Lifestyle Fashions, under the Reserve Bank of India’s Covid-19 relief framework, said two sources with knowledge of the matter. Continue reading for the Asia Core Credit team's analysis on the potential merger and acquisition between Future Group and Reliance Indstries, and request a trial to access reporting and analysis of merger and acquisitions in the region.
Future Group’s lenders are preparing for two scenarios: a restructuring of the group, or acquisition by Reliance. They attended separate meetings with EY this week and last week, said the sources. If the deal with Reliance proceeds, debt would be restructured under new company management. If the merger does not proceed, the lenders will go ahead with one-time restructurings for different group entities, the sources added.
At a presentation made earlier this week, EY detailed the debt of each Future Group lender that would be transferred to Reliance under the scheme of arrangement and the treatment of residual debt, the sources said. As part of the scheme of arrangement released on Sept. 16, RIL subsidiaries will take over liabilities of Future Group companies up to March 31, 2020 aggregating INR 190.6 billion, including the 5.6% $500 million senior secured bond due 2025 at par, as reported.
Separately, last week, the advisor presented initial details of the OTR plans of the two Future Group companies as per the K.V. Kamath committee proposed formula, the sources said. The OTR proposals for the other group companies for which intercreditor agreements (ICA) were signed - Future Supply Chain Solutions Ltd., Future Consumer Ltd. and Future Enterprises Ltd. - are being finalized and may be presented to the lenders over the next one or two weeks, the sources said.
One-Time Restructuring
The scheme of arrangement between Future Group and the units of Reliance Industries will become “null and void”, if it does not come into effect on or before March 31, 2021, or any date determined by Reliance, according to the Sept. 17, 2020, scheme of arrangement.
The OTR will only be required if Future Group’s proposed deal with Reliance fails or is not complete by April or May (being 180 days from October 2020 when the OTR was invoked; more below), two of the above sources explained.
Under the Covid-19 one-time restructuring guidelines submitted by the Kamath committee, a resolution plan needs to be implemented within 180 days from the date of invocation which was in October, as reported. The ICAs for Future Enterprises Ltd., Future Retail Ltd. and Future Lifestyle Fashions Ltd. were signed sometime in November, while that of Future Supply Chain Solutions Ltd. and Future Consumer Ltd. were signed sometime in December, as reported.
Under the Kamath committee formula for Covid-19 OTRs, the remaining tenors of loans may be extended by a maximum of two years with or without a payment moratorium.
Two of the sources said there are no current discussions on potential haircuts for lenders. If the OTRs for individual entities fail, then a restructuring of the whole group may be required under the RBI’s June 7 circular, which may involve lenders taking a haircut, the sources said.
Future Group has assured lenders that no haircut would be required under its proposed acquisition, as previously reported. In the proposed OTR, options such as lowering interest rates and extending the tenor of the loans could be explored, as further reported.
The opco lenders will have exposure of INR 108.66 billion in the remaining undertaking of Future Enterprises Ltd. (FEL) after the transfer of assets and liabilities to Reliance Group is concluded, as Reorg reported. FEL will have cash and cash equivalents of INR 69.52 billion after the deal, as reported.
Future Retail Ltd. meanwhile faces an around $14 million coupon due on its $500 million 5.6% senior secured notes on Jan. 22, but has a 30-day grace period to pay the coupon, according to two buyside sources.
Appointment, Regulatory Approvals
After reviewing the OTR plans, the next step for the bank lenders would be to appoint an agency to study its techno-economic viability and then appoint a rating agency, said one of the above sources and a source familiar with Indian restructurings. For aggregate exposures greater than INR 1 billion, an independent credit evaluation is needed from a credit rating agency authorised by the RBI, according to the Kamath committee, as reported.
Capital markets regulator, the Securities Exchange Board of India (SEBI) is still reviewing the deal, according to the most recent, Jan. 8 status on the regulator’s website. SEBI received the draft scheme of arrangement on Oct. 23 and received comments it had sought from the relevant exchanges on Jan. 7, the processing status on the website shows.
In the ongoing legal dispute with Amazon Inc overhanging the deal with Reliance, the Delhi High Court, on Jan. 13 directed Future Retail Ltd. and other respondents to file, by Feb. 12, responses to an appeal filed by Amazon.com NV Investment Holdings LLC to quash and set aside the observations made by Justice Mukta Gupta's Dec. 21, 2020 order. Amazon alleges that the prima facie observations contained in the order could allow Future Retail to “collaterally bypass” the Oct. 25 emergency arbitration order granted by Singapore International Arbitration Centre (SIAC) and upheld by the Delhi court, as reported.
EY declined to comment. Future Retail did not respond to requests for comment.
The pro forma capital structure of Future Retail as of Oct. 10 is detailed below:
-- Rajhkumar K Shaaw, Dipika Lalwani
Future Group’s lenders are preparing for two scenarios: a restructuring of the group, or acquisition by Reliance. They attended separate meetings with EY this week and last week, said the sources. If the deal with Reliance proceeds, debt would be restructured under new company management. If the merger does not proceed, the lenders will go ahead with one-time restructurings for different group entities, the sources added.
At a presentation made earlier this week, EY detailed the debt of each Future Group lender that would be transferred to Reliance under the scheme of arrangement and the treatment of residual debt, the sources said. As part of the scheme of arrangement released on Sept. 16, RIL subsidiaries will take over liabilities of Future Group companies up to March 31, 2020 aggregating INR 190.6 billion, including the 5.6% $500 million senior secured bond due 2025 at par, as reported.
Separately, last week, the advisor presented initial details of the OTR plans of the two Future Group companies as per the K.V. Kamath committee proposed formula, the sources said. The OTR proposals for the other group companies for which intercreditor agreements (ICA) were signed - Future Supply Chain Solutions Ltd., Future Consumer Ltd. and Future Enterprises Ltd. - are being finalized and may be presented to the lenders over the next one or two weeks, the sources said.
One-Time Restructuring
The scheme of arrangement between Future Group and the units of Reliance Industries will become “null and void”, if it does not come into effect on or before March 31, 2021, or any date determined by Reliance, according to the Sept. 17, 2020, scheme of arrangement.
The OTR will only be required if Future Group’s proposed deal with Reliance fails or is not complete by April or May (being 180 days from October 2020 when the OTR was invoked; more below), two of the above sources explained.
Under the Covid-19 one-time restructuring guidelines submitted by the Kamath committee, a resolution plan needs to be implemented within 180 days from the date of invocation which was in October, as reported. The ICAs for Future Enterprises Ltd., Future Retail Ltd. and Future Lifestyle Fashions Ltd. were signed sometime in November, while that of Future Supply Chain Solutions Ltd. and Future Consumer Ltd. were signed sometime in December, as reported.
Under the Kamath committee formula for Covid-19 OTRs, the remaining tenors of loans may be extended by a maximum of two years with or without a payment moratorium.
Two of the sources said there are no current discussions on potential haircuts for lenders. If the OTRs for individual entities fail, then a restructuring of the whole group may be required under the RBI’s June 7 circular, which may involve lenders taking a haircut, the sources said.
Future Group has assured lenders that no haircut would be required under its proposed acquisition, as previously reported. In the proposed OTR, options such as lowering interest rates and extending the tenor of the loans could be explored, as further reported.
The opco lenders will have exposure of INR 108.66 billion in the remaining undertaking of Future Enterprises Ltd. (FEL) after the transfer of assets and liabilities to Reliance Group is concluded, as Reorg reported. FEL will have cash and cash equivalents of INR 69.52 billion after the deal, as reported.
Future Retail Ltd. meanwhile faces an around $14 million coupon due on its $500 million 5.6% senior secured notes on Jan. 22, but has a 30-day grace period to pay the coupon, according to two buyside sources.
Appointment, Regulatory Approvals
After reviewing the OTR plans, the next step for the bank lenders would be to appoint an agency to study its techno-economic viability and then appoint a rating agency, said one of the above sources and a source familiar with Indian restructurings. For aggregate exposures greater than INR 1 billion, an independent credit evaluation is needed from a credit rating agency authorised by the RBI, according to the Kamath committee, as reported.
Capital markets regulator, the Securities Exchange Board of India (SEBI) is still reviewing the deal, according to the most recent, Jan. 8 status on the regulator’s website. SEBI received the draft scheme of arrangement on Oct. 23 and received comments it had sought from the relevant exchanges on Jan. 7, the processing status on the website shows.
In the ongoing legal dispute with Amazon Inc overhanging the deal with Reliance, the Delhi High Court, on Jan. 13 directed Future Retail Ltd. and other respondents to file, by Feb. 12, responses to an appeal filed by Amazon.com NV Investment Holdings LLC to quash and set aside the observations made by Justice Mukta Gupta's Dec. 21, 2020 order. Amazon alleges that the prima facie observations contained in the order could allow Future Retail to “collaterally bypass” the Oct. 25 emergency arbitration order granted by Singapore International Arbitration Centre (SIAC) and upheld by the Delhi court, as reported.
EY declined to comment. Future Retail did not respond to requests for comment.
The pro forma capital structure of Future Retail as of Oct. 10 is detailed below:
Read Reorg’s coverage of Future Retail HERE.
-- Rajhkumar K Shaaw, Dipika Lalwani
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