SynopsisRestructuring of debt is necessary as the classification of loans as NPA could deplete Future’s value and impact valuations, possibly putting the deal with Reliance in jeopardy, bankers said.
Mumbai: Lenders to the Future Group and its bond holders say they are facing the prospect of providing for thousands of crores in potential losses on the debt as the retailer’s legal battle with Amazon threatens to drag out the sale to Reliance Retail.
Future has approached lenders for a restructuring plan as it races to prevent its loans from being declared non-performing assets (NPAs). Bankers say restructuring is the only option as it does not have enough cash flow to service loans immediately. “They are already behind in payments. Some banks must have already classified them as SMA1 or SMA2 and so if a payment does not come this month, then it will become an NPA in some banks’ books, which attracts 15% provisions,” said a person involved in the debt revamp. SMA stands for special mention account. SMA1 are loans due for 31-60 days. SMA2 refers to loans due for over 60 days but less than the 90-day NPA threshold.
NPA Tag Could Deplete Future’s Value
Restructuring of debt is necessary as the classification of loans as NPA could deplete Future’s value and impact valuations, possibly putting the deal with Reliance in jeopardy, bankers said.
“In that sense the restructuring itself is necessary to keep the company as a going concern and hence necessary right now, even if the deal goes through later,” said the person cited above.
Though official numbers are not known, it’s estimated that the group owes lenders as well as bond investors close to ₹30,000 crore. Out of this, ₹20,000 crore is owed to various operating companies while ₹10,000 crore is owed to group holding companies.
The tension among bond holders is reflected in the pricing of the debt. An overseas bond series of Future Retail maturing in 2025 yielded 16.32% on October 20, up from trading as low as 7.08% on August 31 just after Reliance announced its acquisition plan, according to data from BondEvalue, a Singapore-based bond exchange. Bond prices and yields move in opposite directions.