Future Retail Plans To Acquire Group Infra Assets To Reduce Costs

SUMMARY

Future Group approves acquisition of retail infrastructure assets up to INR 4,000 Cr

With this deal, Future Retail expects up to INR 650 Cr reduction in annual lease rentals

Amazon announced acquisition of 49% stake in Future Coupons in August this year

Future Retail announced its intention to acquire retail infrastructure assets from its group company Future Enterprises Ltd on Saturday. The board agreed and approved the acquisition of retail infrastructure assets up to maximum limit of INR 4,000 Cr of Future Enterprises in one or more tranches, the company said in a regulatory filing on Saturday, October 12.

The move is seen as an important step towards simplifying group structure by Future founder Kishore Biyani. Ecommerce giant Amazon announced its acquisition of 49% stake in Future Group’s Future Coupons in August this year. Biyani said the investment in the firm is not just to raise money but also to become a part of the ecosystem.

The retail infrastructure assets are currently used for Future Retail’s large and small stores owned by Future Enterprises, which includes Big Bazaar, fbb and Foodhall. Future Retail pays rental to Future Enterprises under this arrangement. With this deal, the rental cost would come down for Future Retail, reducing the company’s overall expenses. The company expects an up to INR 650 Cr reduction in annual lease rentals. It is a win-win situation for both parties as the transaction would help deleverage Future Enterprises, which had a total debt of INR 6,544 Cr as of 31 March.

Biyani’s Continuous Efforts To Reduce Leverage

As part of steps taken to reduce group leverage and increase growth, last month, logistics company Nippon Express Co. agreed to buy a 22% stake in Biyani’s logistics business Future Supply Chain Solutions Ltd.

In July, the group raised around $250 Mn in its apparel retail business Future Lifestyle Fashions from private equity firm Blackstone. Biyani said that the amazon deal was aimed at enhancing the payments portfolio of both companies.

“We have a database of 8 Bn transactions and 55 Mn customers. Payments is one platform where we can acquire the customer base. And if the customer starts using your payment mechanism then loyalty factor increases. So it’s getting into the ecosystem,” Biyani had said to the media in August this year. Amazon also managed to acquire approx 3.58% stake in Future Group as Future Coupons owned 7.3% shares in Future Retail.