After Reliance Retail Ventures Ltd., the retail holding company of Reliance Industries (RIL), withdrew its ₹24,713 crore offer for Future group’s retail business, there is little hope of survival for Kishore Biyani companies. Future has a shade over 550 stores left after RIL took over 830 stores—including Big Bazaar, FBB and Easyday—for not paying rentals since early 2020. Of the 550 stores, over 70% are defunct, as vendors have stopped supplies for non-payment of dues.

Future’s business is a pale shadow of its past—1,700 stores and ₹30,524 revenue at its peak in FY2019. Today, it owes ₹20,000 crore to banks and ₹8,000 crore to unsecured creditors and vendors. Plus, there would be interest on loans. Operational losses are huge—a combined loss of ₹5,129 crore on revenues of ₹9,456 crore in FY2021. In FY2019, it had posted a combined profit of ₹915 crore. Net debt was ₹10,108 crore in March 2019. Market value has since fallen from ₹34,399 crore to ₹3,815 crore (in March 2021).

In a notice to stock exchanges, RIL said secured creditors had voted against its scheme of arrangement. "In view thereof, the subject scheme of arrangement cannot be implemented," it said.

Shareholders and unsecured creditors voted in favour of the deal. Secured creditors (banks) had asked RIL whether it wanted to execute the earlier offer mentioned in the scheme of arrangement. But RIL chose not to respond officially before the voting. Also, it sent feelers it wanted to cut the offer price drastically as it had already taken over a major portion of Future Group assets, says a banker.

The rejection of the deal is a blessing in disguise for RIL as Future has been engaged in a messy legal war with Amazon, the world's largest e-commerce player. Amazon, which has 3.58% stake in Future Retail Ltd. (FRL), indirectly, doesn’t want the ₹24,713 crore deal to go through. Amazon got an upper hand in the litigation after Supreme Court (SC) ordered resumption of arbitration in Singapore International Arbitration Centre (SIAC). The Singapore Emergency Arbitrator had stopped the deal in an interim order in late 2020. However, Future fought the case in various courts in India with support from Reliance Retail. Sources say Amazon will continue its arbitration against Future Group though RIL has scrapped the deal.

As Future is left with no options but bankruptcy, chances of banks recovering their loans have become slim. Also, how will Amazon, which invested ₹1,400 crore for 49% stake in one of Future Retail’s holding companies, Future Coupons Ltd., recover its investment?

Battle of Pride

Though Future and Amazon were fighting it out in courts, for them, it was a battle of pride too. Both are financial powerhouses and did not want to compromise in their fight for Future. Reliance Retail, which posted a profit of ₹5,481 crore on revenues of ₹1.39 lakh crore in FY2021, has been consolidating its leadership in retail with acquisitions and opening of new stores and warehouses. It had 14,412 physical stores as on December 31, 2021, across consumer electronics, grocery, fashion and lifestyle. It competes directly with Amazon in e-commerce through JioMart.

Amazon Seller Services, which runs Amazon India marketplace, reported a 49% rise in revenue from operations to ₹16,200 crore for FY2021, but posted a loss of ₹4,748 crore, down from ₹5,849 crore in FY2020.

The Amazon-Future case has been like a see-saw. In early March, the SC asked lawyers of both parties to find a solution to their 18-month-old discord. Though the meeting was meant to settle the matter out-of-court, talks were fruitless, as both parties were influenced by the shadow of RIL, which was not a party to the dispute. When the SC-directed 10 days were over, Gopal Subramanium, senior lawyer representing Amazon, told the SC that the conversation is over. “Nothing is happening."

Reliance and Amazon have been building their case all these days with Reliance Retail taking over 830 Future stores and giving offers to employees. Some stores were opened under the ‘Smart’ brand name. On RIL taking over Future stores, the three-member SC Bench, led by Chief Justice N.V. Ramana, asked Future Group's lawyers, "In all fairness, how can your client take away everything and make the matter infructuous virtually?" Harish Salve, appearing for FRL, said his client had not transferred anything to Reliance. FRL was unable to pay rent for more than two years and they terminated leases, he said, adding, “We have no money to pay them.”

On the contrary, Amazon issued a public notice in newspapers, accusing FRL of transferring hundreds of its stores to RIL in a ‘clandestine manner.’ "The actions have been done in a clandestine manner by playing a fraud on the constitutional court of India, the arbitral tribunal and Indian statutory authorities/agencies," Amazon alleged in the notice.

Just before RIL cancelled the deal, Amazon was preparing for the final showdown as the SC Bench allowed arbitration proceedings—which were halted due to Indian court hearings—before SIAC. The SC also transferred Amazon’s application restraining FRL from alienating its assets to the Delhi High Court.

Biyani doesn’t want to continue the business; he preferred the sale to RIL lock, stock and barrel, over Amazon’s rescue package. Just before the RIL deal, Amazon-backed private equity firm Samara Capital was readying equity capital of ₹7,000 crore for saving FRL from loan defaults. But Biyani backed out after he got the Ambani offer.

Genesis of the Fight

Amazon’s plan was to buy a majority stake in Future’s business when foreign investment restrictions would be relaxed. The agreement between FCL and Amazon barred Future from entering into partnerships with competition, including the Mukesh Ambani company.

However, things were not smooth in Biyani's business. Debt issues surfaced from mid-February 2020, when shares of his listed firms started crashing. It triggered rating downgrades with lenders seeking more promoter shares as collateral for Biyani’s loans against shares. Soon, FRL defaulted on interest payments, followed by Future Consumer and Future Enterprises. Bank of India had first moved the National Company Law Tribunal with a petition to initiate insolvency proceedings against the debt-ridden FRL in mid-April. Lenders were also contemplating insolvency proceedings against Future Enterprises Ltd. since it defaulted on March repayments, violating the terms of one-time restructuring. However, Covid outbreak and suspension of the Insolvency and Bankruptcy Code prevented Future group companies from going bankrupt.

It was then that Amazon roped in Samara to fund Future and the Reliance deal later. Amazon filed for arbitration against the deal at SIAC in October 2020 claiming Future had breached the 2019 agreement. The Singapore Emergency Arbitrator halted the Reliance-Future Group deal in an interim order, citing Amazon’s “apparent right” to be present for any restructuring of Future Retail and Future Group. Meanwhile, CCI and stock market regulator Sebi approved the Reliance-Future deal.

It went back and forth in the courts when the drama unfolded outside.

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