Lenders to Future Group rejected a $3.4 billion deal for its retail assets from Reliance Industries Limited (RIL), banking sources said, adding to troubles at the firm which has been struggling to pay off debt since its business was hit hard by the COVID-19 pandemic.
"All secured lenders have voted against the scheme of arrangement put forward by Reliance," said a senior executive at a state-owned lender.
"Initially we thought that any other alternative methods will result in lower recoveries but since then it has been entangled in legal issues and now we are unsure of the value left in it," the source said.
The rejection by lenders come amid a long-drawn legal challenge by U.S. e-commerce giant Amazon.com Inc that has accused Future of violating certain contracts by dealing with Reliance, run by Mukesh Ambani.
Future has denied any wrongdoing and has said it will be pushed to bankruptcy if the deal falls through. The case is being heard at various legal forums, including an arbitration panel in Singapore.
But in February Reliance, which had been in the shadows through the dispute, suddenly took control of hundreds of Future stores, citing non-payment of rent, after assuming many of the leases held by cash-strapped Future.
That spooked bankers, some of whom have already initiated debt recovery proceedings against the firm. Future Group as a whole has more than $4 billion in debt and lenders started classifying the loans as non-performing assets (NPA).
Typically, banks which are secured creditors are accorded the highest priority during debt resolution. However, in this case, Reliance in regulatory filings has assured bondholders of full recovery, raising eyebrows at the lenders.
"The bondholders are getting preferential treatment and that is not something that is palatable to the bankers," said another banker, adding that this was another reason for rejecting the deal.
Lenders are getting ready for a long-drawn battle in bankruptcy court which can take years to resolve, sources said.
Future and Reliance did not respond to requests for comment.