Future group shareholders stare at possible wipeout of investments

Future group promoter Kishore Biyani’s stake fell consistently across group companies since December 2019 after American retail major Amazon infused funds in a Future group promoter entity and the group companies started showing signs of financial distress due to closure of stores due to Covid-19 pandemic.

As lenders take Future group companies to the bankruptcy courts to recover their dues under the Insolvency and Bankruptcy Code, the shareholders of Future group companies are staring at complete wipeout of their investments as secured lenders get top priority in any potential recovery, say lawyers.

“The fate of all Future group shareholders is now sealed with them looking at a complete loss.

“The company shall be admitted under insolvency and the creditors will not be in a position to recover most of their dues.

“This position has arisen since the restructuring has failed due to secured creditors voting against the scheme,” Aditya Chopra, Managing Partner, of Victoriam Legalis.

Statistics submitted to the stock exchanges shows Biyani family stake fell to as low as 8.4 per cent by March this year in Future Consumer from 46.9 percent in December 2019 as lenders started seizing pledged shares across the group companies.

In the group’s flagship firm, Future Retail, Biyani stake fell to 14.3 per cent in March from 47 percent stake held in December 2019.

Future group had raised Rs 1,430 crore from Amazon by selling 50 per cent stake in Future Coupon, a promoter entity of Future Retail in December 2019.

In Future Enterprises, Biyani stake fell from 50 per cent to 17 per cent by March this year.

A similar trend was visible in Future Supply Chain Solutions with promoters stake falling to 22 per cent from 47.9 per cent.

Biyani stake fell in Future Lifestyle Fashions to 20.4 per cent in March this year.

Biyani’s stake however remained the same at 71.6 per cent in Future Markets Networks – the smallest company in revenue for the Future group.

In March 2020 – when India announced a nationwide lockdown –  total pledge of promoter stake was estimated at 89.8 per cent by value across the group companies.

As per data collated by REDD Intelligence, a research firm, 83.9 percent of promoter holdings in Future Retail was pledged while 92 per cent was pledged in Future Consumer.

Similarly, 92.3 percent of promoter stake was pledged in Future Enterprise and 99.8 per cent in Future Lifestyle Fashions were pledged by early 2020.

Just before Future Group companies started showing 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 firm, as debt.

Aion and UBS also invested Rs 500 crore and Rs 350 crore as debt in Biyani’s promoter entity, as per Redd.

The cost of funds raised from the private equity firms was very high.

As per the filing with the Ministry of Corporate Affairs, the charge for these loans’ pricing was at an eye watering 26.5 per cent per annum over a four-year term.

As stock prices of Future group started falling, the group announced a lifeline deal with Reliance Industries in August 2020.

The subsequent litigation initiated by Future group further eroded the share value of the group companies – leading to its collapse.

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