Future Retail shares jump 13% in opening deals; here’s why

Shares of crisis-hit Future Retail surged 13% in opening trade on Monday despite closing most of its Big Bazaar stores after it missed lease payments to Reliance Industries (RIL). There is speculation in the market that Mukesh Ambani’s Reliance Industries will acquire several operations of Future Retail in the coming weeks.

Future Retail (FRL) shares opened higher at ₹46.95 against previous close of ₹45.80 on the BSE. The stock gained as much as 13% to hit a high of ₹51.75 in first hour of trade so far. In contrast, the BSE Sensex was trading 334 points 0.6% lower at 55,523 level.

The country’s second largest retail chain is scaling down its operations to reduce losses as Kishore Biyani-led company is facing difficulty in financing the working capital needs. The company is planning to expand its online and home delivery business, to increase its reach to the customers.

FRL has incurred a loss of ₹4,445 crore in the last four quarters. Besides, it has defaulted on its first repayment obligation of ₹3,495 crore in December following the one-time debt recast. It owes ₹6,278 crore debt to the lenders including Union Bank of India, Bank of India, Bank of Baroda, State Bank of India, Axis Bank and IDBI Bank. Overall, the group companies owe around ₹30,000 crore to the banks.

The company in an exchange filing on Saturday said, “The shareholders are aware that FRL is going through an acute financial crisis. The Company has defaulted on its loan servicing and as already informed, the account of the company has been classified as NPA by the banks.”

The firm, which owns hypermarket chain Big Bazzar among others, alleged that the ongoing litigation initiated by the U.S.-based retail giant Amazon in October 2020 has created serious impediments in the implementation of the scheme over the last one and a half years. This has resulted in “severe adverse impact on the working of the company”, it added.

“The company has been finding it difficult to finance the working capital needs. Increasing losses at store level is a grave concern and is a vicious cycle where larger operations are leading to higher losses…Termination notices have been received for a significant number of stores due to huge outstanding, and we would no longer have access to such store premises,” FRL said.

The company further stated that it is hopeful that the scheme of arrangement proposed with Reliance will be implemented which will be beneficial for all the stakeholders.

Reliance Retail's ₹24,500 crore takeover deal for Future assets has been delayed for more than one and a half years due to the objections raised by Amazon as it holds 49% stake in Future Coupons, the promoter entity of Future Group. Amazon argued that Future Retail violated their contract by entering into a deal with Reliance. In December, 2021, the Competition Commission of India (CCI) revoked the US giant's 2019 agreement, citing misrepresentation and suppression of details.