Deal with Future Retail cannot be implemented: Reliance Industries

Forum Gandhi |K Ram Kumar | | Updated on: Apr 23, 2022

BoI’s application for insolvency resolution likely to be admitted before NCLT

The deal with Future Retail “cannot be implemented,” said Mukesh Ambani-owned Reliance Retail.

In a statement to the exchanges on Saturday, Reliance Industries’ retail arm, Reliance Retail, said, “The Future Group companies comprising Future Retail Limited (FRL) and other listed companies involved in the scheme have intimated the results of the voting on the scheme of arrangement by their shareholders and creditors at their respective meetings.”

It added, “As per these results, the shareholders and unsecured creditors of FRL have voted in favour of the scheme. But the secured creditors of FRL have voted against the scheme. In view thereof, the subject scheme of arrangement cannot be implemented.”

The ₹24,713-crore deal between Reliance Industries and Future Retail has been derailed with nearly 70 per cent of the secured creditors rejecting the proposal. The results of the shareholders’ voting that had taken place on Wednesday were disclosed on Friday by Future Retail.

Vote share

The Kishore Biyani-owned Future Retail informed the stock exchanges that it has secured 85.9 per cent of the shareholder votes in favour of the deal with Reliance. More than 78 per cent of shareholders and unsecured creditors supported the deal but FRL did not get the requisite 75 per cent favourable voting from secured creditors.

Future Retail’s lenders are led by Bank of India, Union Bank of India, Bank of Baroda, State Bank of India, Indian Bank, Central Bank, Axis Bank, and IDBI Bank.

Meanwhile, Bank of India’s application under Section 7 of the Insolvency and Bankruptcy Code (IBC) for initiation of corporate insolvency resolution process against the Future Group of companies is expected to get admitted before the National Company Law Tribunal.

“Banks’ will try for resolution through this route or the Future Group can come in with a revised plan.

“Creditors rejected the scheme of arrangement between Reliance Retail Ventures Ltd (RRVL), a subsidiary of Reliance Industries Ltd, because there was no commitment from Reliance. Only the Future Group had given the plan. How far can we rely on their plan? ,” said a banker.

As part of the Rs 24,713 crore Future-Reliance Retail deal, the offer to Banks was about Rs 16,000 crore.

“But who will pay the balance amount? There was no clarity on this. “For the bond holders’, 100 per cent payment is envisaged but for creditors (secured) there is a haircut. So, the scheme of arrangement was rejected,” said another Bank executive.

The Banker said Reliance can come up with a resolution plan before NCLT. Merely because Banks’ have rejected the deal doesn’t mean that all the doors are closed.

Meanwhile, Future Lifestyle Fashions Ltd.’s chairman and independent director Shailesh Haribhakti has tendered his resignation.

In August 2020, Reliance had agreed to buy out assets of multiple companies of Future Group. It had decided to buy the assets for the logistics, retail and wholesale businesses of the Kishore Biyani–owned company, among others, for a valuation of ₹24,713 crore.

However, Amazon, which had invested ₹1,400 crore in one of the Future Group companies in 2019 had opposed this deal. It had dragged Future Group’s companies into arbitration on grounds that it violated an agreement in which Reliance was a restricted party.

After the e-commerce giant won an interim award in its favour, it moved Indian courts to seek enforcement of the award. This was countered by the Future Group. Since then, multiple cases have been filed in different courts by both sides. These cases may be withdrawn now since the deal in question itself is in jeopardy.

The litigations, according to Future Group that has been making losses for at least five quarters now, has further eroded the company’s financial strength. The company has defaulted on payments to lenders and vendors, among others. Market experts said that the lenders may now drag Future Retail into insolvency process unless Amazon steps in to help with a strategic investor.

Published on April 23, 2022
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