future retail: lenders opt for a judicial audit of Future Retail

Led lenders have appointed BDO India to carry out a forensic audit of (FRL), which is subject to insolvency proceedings, two people with knowledge of the matter said.

Future Retail, led by Kishore Biyani, had tried to avoid bankruptcy by selling its companies to

retail unit. Creditors did not approve the deal and the company was admitted to the National Company Law Tribunal for insolvency proceedings after defaulting on its ₹3,495 crore debt.

Market regulator Securities and Exchange Board of India also last week appointed Chartered Accountants Chokshi & Chokshi to conduct a forensic audit of Future Retail.

The lenders say they wanted an independent valuation of the loan account because they would not have access to the Sebi report. Second, the Ministry of Finance has mandated lenders to carry out forensic audit of non-performing loan accounts when the exposure is above ₹50 crore, a lender said.

Sebi engaged Chokshi & Chokshi to audit Future Retail and related entities for the fiscal year ending March 2020 to March 2022. Future Retail had entered into related party transactions with its affiliates such as

, and future consumer. The audit report could highlight whether these transactions were detrimental to the interests of creditors.

The findings of the BDO India report will be key for lenders to decide whether or not to report the account as fraud.

BDO did not respond to ET’s request for comment.

Future Retail’s outstanding loans including offshore borrowings stood at ₹14,090 crore as of January 31, 2022, the people said. The forensic report could also highlight why the account went sour.

It would also review related party transactions. For example, the fixtures and furniture in the hypermarkets run by Future Retail were owned by Future Enterprises, and Future Retail paid it an annual rent of ₹650 crore. In January 2020, Future Retail paid ₹4,000 crore to Future Enterprises to acquire fixtures and furniture, which it pledged as collateral to raise ₹3,500 crore from overseas bondholders to fund the transaction. The forensic report can show if Future Retail overpaid Future Enterprises.

The domestic creditors had agreed to waive their lien on the furniture and fixtures provided their loans were repaid. The sale of furniture to the retail chain went ahead without any loan repayments to domestic lenders.

In March,

Industries took possession of the premises housing some 900 Future Retail stores due to non-payment of rent. After taking possession, Reliance separated the inventory and furnishings from the stores. Foreign bondholders and domestic creditors say the shelves and other fixtures have no value. Inventory pledged to domestic lenders has also lost value.

Future Retail, already over-indebted, also suffered a setback due to the nationwide lockdown announced in 2020 to curb the spread of Covid-19.

In August 2020, it signed an agreement to sell its entire business to affiliates related to Reliance Industries in a multi-step transaction, but a series of litigation by e-commerce giant Amazon.com alleging breach of the shareholders agreement he had with the company delayed the deal. . In April this year, a majority of secured lenders rejected the deal with Reliance Industries.

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