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MUMBAI : Shareholders of Future Retail Ltd and proxy advisory firm InGovern Research Services have written to the markets regulator demanding immediate action to protect hundreds of thousands of Future shareholders and prevent the company from being referred to an insolvency court, which may wipe out shareholders.

More than 412,000 public shareholders own 85.69% of Future Retail, with the Kishore Biyani-led promoter group holding just 14.31% as of 31 March.

Value erosion
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Value erosion

While retail investors have written to the Securities and Exchange Board of India (Sebi) and the exchanges, InGovern has separately asked Sebi to reverse Reliance Industries Ltd’s takeover of Big Bazaar stores, conduct a forensic examination of Future Retail’s finances, ensure it can repay creditors and prevent further losses to the company’s shareholders. Mint has reviewed a copy of the letters written by the investors and advisory firms to Sebi.

In a surprise move in February, Reliance Industries, which initially offered to buy out Future Group’s assets for 24,713 crore, started to take over hundreds of Big Bazaar stores at prime locations across the country, taking away the primary revenue source of Future Retail. Reliance took control of 950-odd Big Bazaar stores in total, sending shares of Future Retail plummeting.

Reliance, which took over the leases of hundreds of Future Retail stores even as it allowed the company to run them, exercised its right to take control of the stores as the debt-laden Future Retail defaulted on rent and other payments.

Future Retail’s shares have plunged 63.1% since the Reliance takeover of Future Retail stores became public on 26 February. However, the stock has been steadily declining after Amazon blocked Reliance’s takeover of Future Group’s retail, wholesale and other assets.

In a 13 April letter, InGovern sought Sebi’s intervention to conduct a forensic audit of Future Retail to investigate the dealings of its promoters.

In the letter, InGovern also brought to Sebi’s notice the spate of changes in directors and key managerial personnel over the past year. They include Shailendra Bhandari ceasing to be an independent director on 30 April 2021, Sridevi Badiga resigning as an independent director on 1 June 2021, Rahul Garg resigning as an independent director on 14 March 2022 and CEO Sadashiv Nayak joining on 25 August 2021 and resigning on 31 March 2022.

“Currently, the company has two executive directors and three independent directors, without the minimum number of six directors on the board. All these resignations of independent directors and the newly appointed chief executive officer point out that all is not well with the company and the Future group, irrespective of the ongoing dispute with Amazon," InGovern’s letter to Sebi said.

“Sebi, as the market regulator, needs to take into account the changes in directorships and institute a forensic audit of the accounts of the company. As we had pointed out in our letter of December 2021, the company has undertaken a number of related-party transactions in March 2021 that are detrimental to the interests of minority shareholders," InGovern said in the letter, calling for a forensic audit.

In another letter on 19 April to lenders of Future Retail, InGovern said it is surprising that the creditors are initiating insolvency proceedings against Future Retail without first securing the assets of Future Group that are being alienated.

“In addition, there is a need for a forensic audit of all accounts of Future Group companies. Without these two measures, insolvency, by itself, will be against the interests of all stakeholders—the lenders and the shareholders," said the letter to FRL lenders.

The advisory firm has written to the finance ministry and Sebi on 11 December 2021, 11 March 2022 and 13 April 2022.

“There is an urgent need for creditors to seek reversal of the takeover of the assets and a forensic audit of all group companies. We note that there are media reports that State Bank of India has written a letter dated 18 April 2022 seeking accountability on the company’s stores," reads the InGovern letter.

Mint has reviewed a copy of the letters sent by retail investors and InGovern.

Vijay Kulkarni, an advocate and an investor in Future Retail, on 4 May and 6 May, wrote to Sebi and the exchanges on behalf of himself and other investors, complaining about the unprecedented loss caused to shareholders, banks and other stakeholders on account of transfer of Future Retail’s stores to Reliance.

Kulkarni alleged that several directors and key managerial personnel quit FRL to escape accountability. “The intentional transfer and alienation of assets which are grossly and substantially undervalued ought to be investigated into," said Kulkarni in his letter.

Another investor, Ramneek Mehta, also wrote to Sebi and exchanges in the last week of April, urging the regulator to initiate an audit and reverse the store takeover by RIL.

On 3 May, Mint reported that Amazon is considering impleading Reliance in the legal battle with Future Group after the conglomerate seized control of Big Bazaar stores.

The 28 lenders to Future Group have the right of first charge on the stocks, inventory, fixtures, billing systems, and all other equipment in the Big Bazaar stores that have unexpectedly gone under RIL’s control.

After taking control of Big Bazaar stores, Reliance slashed its original offer value for Future Retail from $3.2 billion to around $2 billion and asked the creditors of Future Retail to take a haircut. The secured creditors rejected the offer.

Amazon’s basis for making Reliance a party to the litigation is that the e-commerce giant, too, is unable to facilitate sales of Big Bazaar products on its online platform, and Future Retail’s value has eroded to such an extent that it is difficult for Amazon to find a buyer to help keep Future Retail afloat and repay dues.

In his letter, Kulkarni questioned why Future Retail failed to take legal action against Reliance to secure its retail assets.

Anirudh Laskar
Anirudh Laskar is a senior editor at Mint, with 17 years of experience. He has reported on significant corporate matters including large mergers and acquisitions, India's emerging e-commerce sector and regulatory issues in the financial services industry. Based out of Mint’s Mumbai bureau, Anirudh has worked with Business Standard and The Telegraph before joining Mint in 2009.
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Updated: 11 May 2022, 06:11 AM IST
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