Home / Companies / News /  Future Group turns down Amazon’s bailout offer

Future Retail Ltd on Tuesday formally rejected Amazon’s offer of financial support, saying its asset valuation at 7,000 crore is lower than that offered by Reliance Industries Ltd and that it falls far short of what the Indian retailer needs to pay lenders.

It also said there was no clarity on when the financial support will come. In a letter to Amazon, Future Retail Ltd’s independent directors said they, therefore, have decided not to engage in any further discussions on the proposed offer.

With no immediate financial help in sight, the Kishore Biyani-led group on Tuesday also moved the Supreme Court requesting it to restrain its lenders from declaring the loans to the company as non-performing assets (NPA).

Mint has reviewed the copy of the letter sent by Future Retail directors to Amazon as well the petition filed in the apex court.

Amazon.com last week offered to bail out debt-laden Future Group on the condition that it calls off the 24,713 crore transaction with Mukesh Ambani’s Reliance Industries Ltd. Future’s independent directors asked Amazon for an emergency funding of 3,500 crore by Monday. It is unclear whether Amazon will now rework the offer. A spokesperson for Amazon declined to comment.

R. Sudhinder, a senior partner at law firm Argus Partners, said he believes Amazon is unlikely to change its mind about its offer to Future Group on 22 January.

“Even if Future-Amazon-RIL have different agreements, they must all obtain stakeholder approval. As Future Group has rejected the financial aid from Amazon, the arbitration proceedings between the two will continue on the sidelines," Sudhinder said.

In the absence of any fresh rework on Amazon’s proposal, the only hope for the debt-ridden Future Group is an extension to the 30-day reprieve from the NPA tag by the apex court.

The NPA tag otherwise would enable the lenders to initiate bankruptcy proceedings against Future Retail, further eroding business value, it said in the petition filed in the apex court.

Future Group and its lenders executed a framework agreement when the group intended to hive off its retail business to Reliance. Under the framework agreement, Future was required to sell its small-format retail business by 31 December.

Future owes its lenders more than 12,027 crore and planned to meet its obligations through a slump sale to a Reliance unit for 24,713 crore. But the sale was stopped after Amazon claimed the Indian group violated certain non-compete contractual terms.

Future Retail has already missed the first deadline to repay 3,494 crore. A 30-day grace period for clearing the dues expires on 29 January, which prompted the independent directors to write to Amazon seeking 3,500 crore as urgent financial support.

Amazon’s reply sought due-diligence reports. According to Future Retail, Amazon’s response failed to offer a correct valuation for the retail major’s assets and give a timeline.

“Your proposal does not meet these basic criteria on speed and timing of funding, legal compliance and adherence with the regulatory rulings, which you have simply chosen to ignore. This makes it apparent that your offer is more by way of posturing for extraneous reasons and not to address the crisis in which FRL (Future Retail) finds itself. We had also made it clear that assessment of any proposal would be subject to FRL’s legal obligations," said Future Retail in the letter.

Future Retail’s directors said the company needs 12,027 crore for honouring its debt to lenders and vendors up to March 2022.

“Your proposal that FRL sells all its retail assets to Samara for a total consideration of 7,000 crore is a sorry attempt to buy FRL’s assets on the cheap, leaving FRL in a hopeless situation facing bankruptcy proceedings—all causing public injury and public harm," said Ravindra Dhariwal, independent director for Future Retail.

Future Retail can now only avoid recovery proceedings from its lenders or a reference to the bankruptcy court through a Supreme Court order directing the Reserve Bank of India to extend the 30-day regulatory grace period.

Future Retail, in its petition, put down its inability to pay the dues by the required deadline to the restrictions in selling its small stores owing to Amazon’s objections. It said the litigation with Amazon impacted the company’s monetization plans.

“The Petitioner No. 1 (Future Retail) was required to monetize its small-format retail businesses (Easyday club and Heritage Fresh) by 31.12.2021. The proceeds from the monetization of the small-format retail business (i.e. 3,000 crore) was to be utilized towards repayment of the restructured facilities," said Future in the petition.

Amazon has procured an arbitration order from the emergency arbitrator to prevent the Future group from selling its retail venture and maintaining the status quo.

Future Retail argued that the lenders’ default notices have been “erroneously issued."

“Despite Future having expressed and undeniably established its bona fide intent to adhere to the timelines prescribed in the restructuring framework. Future has also informed and explained the lenders about the orders of injunctions passed in arbitration and related proceedings initiated by Amazon.com NV Investments Holdings LLC, which restrained Future Retail from being able to sell its assets to meet its debt obligations," Future Retail said in the plea.

Priyanka Gawande
Priyanka Gawande is a senior legal correspondent at Mint. She has worked as legal reporter for four years with both television and digital mediums. Based in Mumbai, she reports on disputes across sectors including banking, corporates and finance. This also includes insolvency and bankruptcy cases and intellectual property rights (IPR) litigation. Her focus also comprises tracking capital markets and disputes relating to securities law. Previously, Priyanka worked with Informist Media for 2.5 years covering major insolvency and bankruptcy cases and corporate developments. She started her career in journalism with Business Television India (BTVi) where she reported on primary markets, banking, finance and insurance companies.
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