Banks, which have a significant exposure to both Future Retail (FRL) and its promoters, are nudging the company to go for an all-stock merger with an existing retail player. The move has been expedited after its promoter Kishore Biyani defaulted on loans in March and FRL’s share price collapsed from its recent high in February.
According to a banker close to the development, the lenders have approached India’s top retail players to evaluate the possibility of a merger.
“The company may not get a good valuation due to the falling financial metrics. It is also short in cash of around Rs 200 crore (as of December 2019). Banks have, therefore, approached all big players, including Reliance Retail, to see whether they are interested in acquiring the company,” said a banker.
A Reliance spokesperson declined to comment, terming it as market speculation. Future officials were not available for comment.
On Tuesday, Future Retail stock closed at Rs 77 a share, down 5 percent — giving it a total market valuation of Rs 4,000 crore.
The promoters own about half the company’s equity and of this, 50 percent is pledged with the banks. A fall in share price since February will lead to banks owning more equity in the company. With the promoters seeking debt restructuring both at the operating and promoter group level, banks have advised the company to go for asset sale to pay their dues.
Banks are also worried that the restructuring of onshore debt at Future Retail and other related entities could trigger a cross-default on its $500 million senior secured notes. The restructuring of promoter debt could trigger the change-of-control clause on the company’s senior secured notes, as the promoter shareholding will fall below 26 percent, they warned.
Analysts said the firm’s sales in high-margin segments were unlikely to pick up until later in the year because of the pandemic. This accounts for almost a third of its sales. At the same time, banks have slowed down Future Retail’s disbursement of approved credit lines from banks.
This includes working capital credit loans of about Rs 2,125 crore, which were expected to be available in April. In addition, the firm is proposing to avail its Rs 650 crore peak-season working capital credit line to support its liquidity.
For the time being, the firm may manage to dodge the bullet as banks may release working capital this month and help meet funding requirement.