Lenders ask SpaceMantra to sweeten Rs 550 cr offer for Future Retail

The lender will have to take a massive 97 per cent haircut on their claims worth Rs 19,400 crore that were admitted against the bankrupt company

Indian lenders have asked SpaceMantra, the highest bidder for Future Retail, to further sweeten its offer of Rs. 550 crore for the company. The lenders’ claims of Rs. 19,400 crore were admitted against the bankrupt company. They will have to take a massive 97 per cent haircut on their claims.

“We are in negotiations with the highest bidder, asking it to better the offer as recovery for lenders is less than 3 per cent,” informed a source privy to the development.

“This is a bad deal for lenders who had made claims of Rs. 21,000 crore against the company, but the resolution professional only accepted claims of Rs. 19,400 crore. The haircut will be one of the highest in Insolvency and Bankruptcy Code (IBC) cases,” said a source.

The haircut is the amount banks forgo to make the account standard.

An email sent to SpaceMantra did not elicit any response until the time of going to press.

The company was sent for debt resolution under IBC, 2016, in October last year after the Kishore Biyani company defaulted on banks and its suppliers.

In April this year, 49 companies sent their expressions of interest to acquire the company, but most backed out while making a binding offer. Of the 49, only six companies — mainly scrap dealers — sent their binding offers.

Future Group companies started struggling even before the pandemic led to the closure of 1,800 shops across 420 cities.

In August 2020, the group announced a Rs. 24,700 crore transaction with Reliance Retail: all companies were to merge under one entity and transfer to the Reliance entity.

This transaction was later rejected by lenders, and the companies were sent for debt resolution under IBC.

Interestingly, just before Future Group companies started showing signs of financial distress, the group raised Rs. 4,620 crore ($622.7 million) between April and December 2019 through a mix of debt, equity, and stake sales.

Of this, Rs. 1,750 crore was invested by Blackstone, and Rs. 590 crore was raised from Apollo, a private equity (PE) firm, as debt.

AION Capital Partners and UBS also invested Rs. 500 crore and Rs. 350 crore as debt in Biyani’s promoter entity, according to Redd, a research firm.

The cost of funds raised from PE firms was very high. According to the filing with the Ministry of Corporate Affairs, the charge for the pricing of these loans was an eye-watering 26.5 per cent per annum over a four-year term. These high-cost loans later led to default and bankruptcy.
 

The story so far

 

• March 2020: Pandemic forces Future group to shut down its 1,800 shops across 420 cities
• August 2020: Reliance Retail announces a Rs 24,700 cr deal to acquire entire Future group businesses
• April 2022: Lenders reject RRL-Future group transactions
• October 2022: Lenders sent Future Retail for debt resolution under IBC
• April 2023: 49 firms send EoIs but only six make binding offers