FRL shareholders will be affected if banks opt for IBC resolution
Future Retail Ltd shareholders risk seeing the value of their shareholding wiped out if the company goes to bankruptcy court for resolution.
This is because once a company is brought onto the IBC track, shareholders have the final right to all of a company’s assets after the repayment of dues to government, financial institutions, banks and other creditors and bondholders. . The banks are likely to bring Future Retail to the NCLT after rejecting the company’s plan to sell its assets to Reliance Industries Ltd (RIL). According to analysts, the Insolvency and Bankruptcy Code (IBC) puts banks and financial institutions at the top of the list before statutory dues. Shareholders stay low and they get whatever is left after the banks and bondholders have been paid. In most cases, shareholders get nothing, according to an analyst.
Future Retail shares closed at Rs 29.24, down 3.94%, on BSE on Friday. The company has a market capitalization of Rs 1,586 crore. The promoters hold only 14.31% of the capital of the company. Reliance Industries Ltd said on Saturday the takeover proposal could not go ahead because secured creditors had rejected the RIL plan. On Friday, secured lenders rejected Future Retail’s Rs 24,713 crore deal to sell its assets to Reliance Retail Ventures Ltd, a subsidiary of RIL. “FRL’s shareholders and unsecured creditors voted in favor of the plan. But the FRL’s secured creditors voted against the project. In view of this, the scheme of arrangement in question cannot be implemented,” RIL said in a filing.
According to an exchange filing, in electronic voting by secured creditors, 69.29% of votes from 11 lenders were against the proposal to sell the assets to subsidiary RIL. However, 30.71% of votes from 34 lenders were in favor of selling assets.