The future of Future and three probable scenarios

• Mukesh Ambani-led Reliance Industries has finally called off the ₹24,713 crore deal to buy retail assets of the Future Group as the creditors did not approve of it.
• Even though Reliance Industries has proposed to take over the ₹12,000 crore debt of Future Retail, the banks were not convinced.
• Business Insider spoke to experts on how Future’s future could turn out to be. Here are three possible scenarios.

After making a big hullabaloo for over 18 months, Mukesh Ambani-led Reliance Industries has finally called off the ₹24,713 crore deal to buy retail assets of the Future Group. This move could potentially lead the Kishore Biyani-led Future Retail into bankruptcy.

Even though Future Retail’s shareholders and unsecured creditors were in favour of the deal, secured creditors were the ones that raised red flags over it. A secured creditor is generally a bank or other asset-based lender that holds a fixed or floating charge over a business asset or assets. Some leading banks that were secured creditors to Future Retail were not in favour of the deal due to the ambiguity on debt recovery, experts told Business Insider.

Even though Reliance Industries has proposed to take over the ₹12,000 crore debt of Future Retail — out of the total ₹14,090.6 crore debt — the banks were not convinced how that will follow through especially when the deal is facing several legal hurdles raised by Amazon. The case has been ongoing in Indian courts as well as Singapore International Arbitration Centre (SIAC).

What’s next for Future Retail?

The creditors of Future Retail are now expected to take the Insolvency and Bankruptcy Code (IBC) route, and move the bankruptcy court for a resolution plan. The IBC was enacted by the Indian parliament in 2016 with the intention of bringing uniformity to India’s bankruptcy laws.

The matter can be filed with the National Company Law Tribunal (NCLT). The process is likely to go up to a year and result in the auctioning of Future Retail’s assets, Anshuman Khanna, the founding directors of Valpro, told Business Insider. He also noted that NCLT proceedings could overwrite objections of Amazon.

That one year from now to the auctioning process is going to be quite problematic for Future Retail, he added. The company’s senior management would be working on an ad hoc basis, the attrition rate among employees is more likely to increase and the company is going to have a financial turmoil in the time to come.

Business Insider spoke to experts and analysts on how Future’s future could turn out to be. Here are three possible scenarios:

Scenario One: A new buyer comes to the rescue

The first scenario is the one where a third buyer comes along and buys Future Retail at the auction. This is exactly what happened in the case of Jet Airways. “To draw a parallel, if you take an example of Jet Airways that went for NCLT and then ultimately got bought by some other person. During the period of NCLT, its operations were badly affected to the point of standstill and after the new owner comes in they will try to revive it,” Khanna added.

However, this may not bring much benefit to the minority shareholders as their shareholding in the company becomes negligible once the new owner issues more shares, Khanna added. Plus the value of Future Retail is likely to plummet even further due to reduction of assets and the problems it is likely to face in the near future.

For the time being, Future Retail is trying to revive its business by selling a few brands. “Future Lifestyle will raise an amount of ₹1000 crore by selling few brands and also is in talks with few banks for debt restructuring .The plan here is to monetise the assets so that it can continue with its business and generate cash flows to sustain in short term till IBC proceedings are conducted by NCLT,” Manoj Dalmia, founder and director of Proficient Equities, told Business Insider.

Scenario Two: Reliance Industries reappears later

Experts have emphasised that there is still a possibility that Reliance Industries may make a backdoor entry to acquire the retail assets of Future Retails during the insolvency proceedings. That way the company would be able to acquire the same assets at a lower cost.

Future Retail already allowed Reliance Retail to take over 946 stores — belonging to Big Bazaar, Fashion at Big Bazaar (FBB), Easyday, Heritage store and more — earlier in January in order to accelerate the deal with Reliance one way or another.

Future Retail simply stopped paying the rent to terminate their lease, and allowed Reliance Retail to take over these properties. “Despite calling off the deal with Future Retail, Reliance Industries still walks away with 947 small and large format stores,” Dalmia told Business Insider.

Khanna emphasised that the backdoor deal cracked in January 2022 has now led to a loss for the company, shareholders as well as the creditors of the company. He noted that Future Retail does have some stores and brands, but their worth is a “question mark”.

Scenario Three: Amazon may chase Future Retail

Citing it as the best case scenario, Valpro’s founding director Khanna noted that Amazon along with few private shareholders may also pitch to acquire Future Retail. Now that Reliance Retail is out of the picture for now, Amazon should be able to bail it out. This will be the best scenario for creditors as well as shareholders, with both minority and majority shareholdings.

“If it [case] goes to NCLT someone else will take it over and minority shareholders will get nothing. Even the lenders will have to take a haircut on their loan amount,” he said. He noted that if Amazon invests in the company on an ongoing basis, no one will have to take any more loss.

Any which way “the merit will go to the banks which have lended money to Future Retail, any acquisition done through proper process will at least help the banks recover about 10% of assets instead of entirely defaulting in payments,” Dalmia added.

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