Lenders to the Kishore Biyani-led Future Group could see their huge loans, collectively worth around $3 Bn, turn into non-performing assets (NPA) because of a delay in the sale of the company’s assets to Reliance Industries, after Amazon filed a legal suit against Future Group.
In August last year, Amazon had acquired a 49% stake in the Kishore Biyani-owned Future Coupons for around INR 1,500 Cr. Future Coupons is the promoter-entity of India’s second-largest retail chain Future Retail and owns a 7.3% stake in the company. Amazon had also managed to acquire around a 3.58% stake in Future Group.
Earlier this month, Amazon filed a legal suit against Future Group over the latter’s alleged breach of the non-compete clause in the contract between both parties, with the planned sale of its retail, wholesale, logistics and warehousing businesses to Reliance Retail in August this year in a deal worth INR 24,000 Cr.
The Future Group stakes sale was expedited by its creditors after Biyani had defaulted on loan repayments in March this year.
According to the contract signed between Amazon and Future, the sale of the business to rivals (Reliance) is barred. Amazon, in its legal notice, has claimed that Future Group violated the deal between the two companies when it entered into an agreement with Reliance earlier this year.
Amazon has filed the suit against Future Group with the Singapore International Arbitration Centre (SIAC).
According to Namita Matthews, a partner at Bengaluru-based law firm Algo Legal, the arbitration proceedings could take up to a year to be completed. “The Party that does not succeed would also have the right to appeal, though the ambit of arbitration appeals is very limited. Nonetheless, there would be time lost by both sides,” she said.
“This, however, does not stop creditors of Future Group to start enforcing their claims, which could plunge Future Group into further serious financial distress.”
It is reported that Future Group firms owe around INR 16,000 Cr to a clutch of banks and debt mutual funds, while Future Group founder Biyani owes close to INR 11,000 Cr to lenders.
Matthews claimed that Amazon’s decision of enforcing its rights has had a huge market impact in the way creditors view Future Group. In the near future, several creditors could be approaching legal forums to secure their monies.
Future Retail has more than 1500 stores across 437 Indian cities and towns covering an area of 16 Mn square feet and is the parent of brands like Big Bazaar, Fashion Big Bazaar, HomeTown, Food Bazaar, and others. Big Bazaar reportedly contributes about 80% to Future Retail’s revenue. Comparatively, Reliance Retail operates in nearly 12K stores across 6,600 towns and cities, covering an area of 28.7 Mn square feet.
Last month, Inc42 reported that India’s antitrust watchdog, the Competition Commission of India (CCI) will review the offline and online aspects of the deal between Reliance and Future Group and their effect on the competition in the sector.
Amazon vs Reliance
Amazon’s decision to pursue legal action against Future Group will also have a bearing on the competition among the retail giants in Indian.
With the launch of its online store JioMart earlier this year, Reliance Retail entered into direct competition with Amazon in the ecommerce sector. Both platforms have beefed up their online offerings, in terms of product categories and discounts, as the Diwali festive season nears.
In the last couple of months, Reliance Retail has been attracting investments from several companies, some of which have previously invested in Reliance’s digital venture Jio Platforms as well. On October 6, Inc42 reported that the United Arab Emirates (UAE)-based sovereign wealth fund Abu Dhabi Investment Authority (ADIA) has committed to invest INR 5,512.50 Cr in Reliance Industries’ retail unit Reliance Retail in exchange for 1.20% equity stake on a fully diluted basis.
When the investment comes through, Reliance Retail will have raised INR 37,710 Cr from global investors including Silver Lake, KKR, General Atlantic, Mubadala, GIC, TPG and ADIA in less than four weeks.