With Future Retail announcing its intention to acquire retail infrastructure assets from group company Future Enterprises Ltd, its billionaire promoter Kishore Biyani has taken a key step towards simplifying his group structure.
The board of Future Retail, in a meeting on Saturday, agreed and approved the “acquisition of the retail infrastructure assets up to maximum limit of ₹4,000 crore of Future Enterprises in one or more tranches", the company said in a regulatory filing.
These retail infrastructure assets are currently used by Future Retail for its large and small format stores, but are owned by Future Enterprises. Future Retail pays lease rentals to Future Enterprises for these assets.
Future Retail operates retail chains like Big Bazaar, fbb and Foodhall.
The deal will help both the companies. For Future Retail, it would significantly reduce rental costs, with the company expecting an up to ₹650 crore reduction in annual lease rentals, the company said in an investor presentation. The transaction would help deleverage Future Enterprises, which had a total debt of ₹6,544 crore as of 31 March.
The deal would also help reduce inter-corporate linkages between entities of the Future group, simplifying its structure.
It would result in cessation of all corporate guarantees from Future Retail to the lenders of Future Enterprises, the company said.
Future Retail with a debt of ₹2,554 crore, recorded a revenue of ₹5,197 crore in the quarter ended 30 June, and an Ebitda of ₹646.8 crore, according to data from Bloomberg. Ebitda is earnings before interest, taxes, depreciation and amortisation.
Future Retail plans to finance the asset purchase through “equity funds being raised, equity upside share and existing credit facilities available with the company". The company has no plan to raise fresh funds, it said.
These and other initiatives being put in place by the management are aimed at generating significantly higher operating cash flows from the business and come at a time when Biyani has attracted a strategic investor in Future Retail in the form of e-commerce giant Amazon.
In August, Biyani sold a 49% stake in group entity Future Coupons Ltd to Amazon for around ₹1,500 crore. Future Coupons, through warrants that it holds, has a 7.3% stake in Future Retail.
In the last few months, Biyani has taken several strategic steps to reduce group leverage and bring in strategic investors in individual group businesses to help propel their growth.
Last month, Nippon Express Co., one of Japan’s largest logistics company, agreed to buy a 22% stake in Biyani’s logistics business Future Supply Chain Solutions Ltd, through a mix of primary and secondary stake sales.
Earlier in July, the group raised close to $250 million through a mix of debt and equity stake sale in its apparel retail business Future Lifestyle Fashions, which operates Central and Brand Factory. The funds were raised from private equity firm Blackstone.