Future group is one of the most prominent and popular retail conglomerates in India that was founded by Kishore Biyani.
This group reportedly agreed to sell a few of its warehousing, retail, logistics, and wholesale assets to Mukesh Ambani’s Reliance Retail Ltd, subsidiary of Reliance Industries.
The deal details the sale of Big Bazaar supermarket, Brand Factory, Home Town, Central, and several others. The insurance and finance businesses are not a part of this deal.
The sale is said to be valued at over $3.4 billion.
The key reason to take this step was debt. Future Group accrued a mountain of debt over the years and is facing pressure from lenders.
This isn’t the first time Future Group resorted to sale of its assets to payoff debts. Before this back in 2012 they sold some of their most valuable assets, that was Future Capital and Pantaloons.
When the pandemic struck and lockdowns were imposed the group lost nearly ₹7,000 cores in the first few months of 2020.
“We got into a trap to be very honest with COVID-19. In the first three-four months, we lost nearly ₹7,000 cores of revenue. There was no way the company could have survived losing such an amount. The problem is rent doesn’t stop, interest on debt doesn’t stop. I thought there was no other answer but to exit,” said Kishore Biyani, the Founder of Future Group.
WHY RELIANCE WANTS A DEBT STRUCKEN COMPANY?
Reliance Retail Ltd is the largest retailer in India. By acquiring Future Groups assets they just get larger.
They get the benefit of economies of scale and dominant the industry. It is reported that they would also gain control over 1/3rd of India’s organized retail business sector .
If this deal does go through Reliance will end up having a competitive edge over its foreign counterpart Amazon, who is also trying broaden its presence within the Indian market.
HOW AMAZON FITS IN THIS NARRATIVE?
Jeff Bezos’s Amazon entered into a partnership with Future Group. The ecommerce giant acquired 49% ownership stake in Future Coupons Ltd along with the right to acquire Future Retail Ltd within a period of 3 and 10 years.
It is also to be noted that Future Coupons Ltd has a 7.3% stake in Future Retail Ltd. Hence indirectly Amazon has a 3.58% stake in Future Retail Ltd.
AMAZON STALLS RELIANCE-FUTURE GROUP DEAL
Amazon claims that the group violated their agreement by entering into a deal with Reliance.
Amazon took Future Group to court in Singapore. The Singapore International Arbitration Centre (SIAC) ruling was in favor of Amazon and the deal between Reliance and Future was ordered to be benched.
However these two giants flouted the order as there is no mechanism or law in India that can enforce a international arbitration order.
In response to this Amazon went to SEBI, this matter was later raised in the Delhi High Court, subsequently a judge in agreed with Amazon’s plea and stayed the sale of Future Group’s assets to Reliance but they can however continue to work towards the deal.
Presently the matter has been taken to the apex judiciary body, the Supreme Court of India in hopes for justice. However the hearing of Amazon’s plea has been deferred due to the raging Covid-19 pandemic in India.
It is said that if this deal between Reliance and Future group does not go through, the conglomerate will have to declare bankruptcy and layoff thousands of its employees.