On Thursday, the committee of creditors (CoC) extended the timeline for voting to September 7 from August 31 as some lenders wanted more time to get internal approvals from their top management. Lenders are closely weighing their options with some preferring liquidation of the company rather than assigning the debt for next to nothing.
“The offer is very close to the liquidation value and some lenders are uncomfortable with selling it so cheap but our choices are limited. One school of thought is that this is the only bid on the table and if we go for liquidation it will delay the process further and also add to the insolvency resolution costs because it will take six to nine months more. But some others are of the view that selling it so cheaply and that too based on payments to be received later could invoke questions later. Everyone is weighing their choices,” said a person familiar with the process.
Space Mantra’s offer of ₹553 crore is 2.79% of the total outstanding dues of ₹19,773 crore owed to financial creditors. The company has submitted a bank guarantee of 20% of its bid value (₹110 crore) which can be encashed if it fails to fulfil its resolution plan.
It has promised to start paying back lenders after 90 days after getting NCLT‘s approval for its plans.Space Mantra was the only bidder seeking to take over the whole of Future Retail, among 48 expressions of interest received by the resolution professional (RP), ET had reported in May. The RP Vijaykumar Iyer did not reply to an email seeking comment.Kishore Biyani’s flagship retail venture owes a total of 38 creditors led by bondholders represented by Bank of New York Mellon (BNY Mellon) which owns 21% of the debt or ₹4,109 crore followed by Bank of Baroda at ₹1,826 crore (9.24%), Union Bank of India at ₹1,779 crore (9%) and Central Bank of India at ₹1,656 crore (8.38%).Space Mantra’s offer says if the sale of assets does not materialise, then the company has reserved its right to give back the asset to the lenders. The low recovery rate as well as preconditions to the bid has put off some lenders.
“Besides the very poor offer, the discomfort by some lenders is because the liquidation value is unclear as many stores were not accessible for a proper valuation because they were locked by landlords for non-payment of dues. So the worry is that the liquidation value would be much higher than the current bids which is why some prefer not to sell it for a song now,” said a second person aware of the details. ET could not ascertain the current liquidation value.
To be sure, the company’s assets have been eroded as all the consumable inventory is past expiry and most of its stores have been taken over by Reliance Retail after their lease ran out.
The company had 302 stores, its brand value, some furniture and fixtures, non-perishable inventory, and investments in subsidiaries, which can be valued, ET reported in May.
Lenders are also uncomfortable because of the history of the account. “So much has happened. This account first slipped in 2019. A Covid-induced restructuring was introduced in 2021 which failed and subsequently, Reliance Retail made an offer to take over the company which was challenged by Amazon. Then Reliance also took over stores, so banks would rather be safe than sorry,” said a third person aware of the matter.
“It is an evolving situation. Banks will weigh all options. With the history of this case banks will be cautious before finalising anything,” said the second person cited above.
