Future Group, Amazon set for long court battle as Reliance deal off

With Reliance Industries (RIL) backing out of its deal with Future Group, the only option for the Kishore Biyani-led entities is to sell each of the businesses separately to unlock value, according to a source in the know.

On Saturday RIL informed its shareholders in a stock exchange filing it would not go ahead with its deal with Future Group after the latter’s secured lenders voted against the scheme of amalgamation, leaving the company in the lurch.

Future Retail and Future Enterprises have huge debts and lenders have initiated bankruptcy proceedings against Future Retail. The other businesses that were part of the deal include warehousing, logistics, and wholesale.

On the other hand, Reliance Retail is in a sweet spot after taking over 947 stores of Future Group by transferring the lease to itself. These 947 stores are in the process of being re-branded and opened, an exercise it began in February.

Meanwhile, lenders to Future Group entities are preparing for legal action, including reference to the National Company Law Tribunal (NCLT) for resolution. Last week they dragged Future Retail, a non-performing asset, to the NCLT. The application made by public sector Bank of India, on behalf of the lenders’ consortium, is awaiting admission.

Senior public sector bankers said the fate of each group entity was tied to one another. They are in dire straits and one by one group entities will go to the NCLT.

Banks began making provisions in early FY22 for group exposures as loans to entities like Future Retail and Future Enterprises were restructured under a regulatory package for entities hit by the Covid 19 pandemic.

Most lenders are looking to make a maximum provision (approaching 100 per cent) in Q4, FY22 for group exposures, executives said. Lenders’ exposure to Future Group is about Rs 24,000-25,000 crore. A State Bank of India executive said the bank had made full provisions for its Rs 2,900-crore exposure. At present, this account is with a wing that handles corporate banking. Now, it would be moved to the stressed asset management group for resolution and recovery.

Amazon has also been fighting the case against Future Group in several courts because its deal in 2019 with Future Coupons stated it could not go ahead with a deal with some companies which included Reliance, if there was any stake sale involved. While the situation has now drastically changed with Reliance pulling out of the deal, people familiar with the matter said Amazon might continue the legal battle related to the deal between Future and Reliance.

“Amazon’s legal team is discussing its action against Reliance’s move related to the rejection of the scheme. If lenders and Future Retail take the insolvency route, there is nothing much Amazon can do,” said a person with knowledge of Amazon’s strategy. “If they decide to revive the company, then Amazon may take the call, whether it will help them find an investor. 

Amazon’s next action would be based on the lenders and Future Retail.”

He added there was a high possibility of Reliance picking up the remaining assets of Future through insolvency if the lenders and Future Retail were not bringing back the 947 stores.

The source further said through insolvency Amazon might get back the investment of Rs 1500 crore it made in Future Coupons, the promoter entity of Future Retail.

“Amazon will take a haircut, but that is little compared to what lenders would lose,” the source said.