Share prices of Future group firms rise on hopes of deal with RIL

RIL entry will lead to Amazon's exit from promoter entity

Share prices of Future group companies went up on Thursday after group firm, Future Enterprises announced late on Wednesday night that its board of directors would meet on Saturday for a possible fund raising. The transaction may involve fund infusion by Reliance Industries into FEL and exit of global retail giant, Amazon from one of the promoter entities of the flagship, Future Retail Ltd.

While Future Retail closed 11 per cent up at Rs 130 a share, Future Enterprises stock was up 5 per cent after investors said that Reliance Industries would be taking over the struggling retail companies of Future group.  According to a plan in the works, three Future group companies -- Future Lifestyle Fashions Ltd, Future Supply Chain Solutions Ltd and Future Retail Ltd will be merged into Future Enterprises Ltd. RIL will invest around Rs 8,500 crore in the merged entity once the entire merger process is over.

Indian lenders, who have exposure to both listed entities and Biyani’s private holding companies, will also take a haircut in the transaction as Future group companies have started defaulting on loans. The lenders will also get the first charge on the real estate assets of Future group, said a source close to the deal.

As RIL gets set to invest in Future, the  industry is keenly watching the next move of the global retail giant, Amazon, which had invested Rs 1,431 crore at Rs 1,462.5 per share in Future Coupon Private Ltd, a promoter entity of Biyani, in December 2019. Thirty-five per cent of Amazon’s investment was made in Class A shares and the rest was made in Class B shares. The investment from Amazon helped to pay for new shares in Future Retail and pay loans early this year.  

Future Coupon held a 7.3 per cent stake and 14.8 million in warrants which once fully converted would have resulted in a 9.8 per cent stake in Future Retail. FCL was also issued 39.6 million warrants by Future Retail at a price of Rs 505 per warrant and it paid Rs 500 crore upfront while the rest was due within 18 months.

Despite the Amazon cash infusion, the group companies started facing serious financial trouble on its Rs 13,000 crore debt at listed entities level and another Rs 12,000 crore loan at the promoter entities level.

“Amazon’s entry could not help the group survive and gave an opportunity to RIL put a foot in the door,” said a banker close to the deal. Amazon will be going home with a huge loss, he added.

By March this year, the countrywide lockdown resulted in further erosion in the group’s financial metrics and loss of valuation of all Future group shares. FRL had to seek a moratorium on loans from lenders as part of the Covid-19 - Regulatory Package announced by the RBI on March 27, 2020.

As on Aug 27	Price in Rs	Price change (%)#	Mcap ( Rs crore)	Mcap Change ( Rs crore)#
Future Retail	130.2	11	7056.8	696.7
Future Consumer	10.9	5	2101.7	99.9
Future Lifestyle Fashions	138.2	5	2788.5	132.2
Future Enterprises	19.3	4.9	956.7	44.7
Future Supply Chain Solutions	148.4	-0.4	651.2	-2.9
			13554.9	970.7

# over previous close

Source: Bloomberg/Exchange

Compiled by BS research Bureau

The company’s operations were disrupted due to the lockdown as it was allowed to sell only essential grocery items. This resulted in weakening of its operating cash flows. Due to reduced cash flows, the company’s capital structure and debt protection metrics are expected to deteriorate further once the moratorium ends this month-end. Hence, the deal announcement before the month-end.

FRL’s reliance on its group companies has shown an increasing trend from sourcing 8% of its total requirements in FY17 to 32% in FY19. FRL is dependent on Future Enterprises Limited as it rents its retail assets from the latter (FY19: Lease rental Rs. 694 crore) and for purchasing goods (FY19: Rs. 3,142 crore). The company's warehousing and logistic requirements are managed by Future Supply Chain Solutions Limited (FY19: Rs. 557.88 crore). Furthermore, FEL and FRL have also provided cross guarantees on behalf of each other for various borrowings to the tune of Rs. 5750 crore and Rs. 3583 crore respectively as on March 31, 2019.

During the last one year, Future Retail's market capitalisation has declined significantly from Rs. 25,400 crore to Rs 7,056 crore as of today.

Company Code	Company	Bloomberg	Latest Market Price (BSE)	MCap (BSE)	Security
2467	Future Enterp.	FEL Ib Equity	18.35	911.97	Future Enterprises Ltd
29335	Future Consumer	FCON Ib Equity	10.42	2001.8	Future Consumer Ltd
39587	Future Supply	FSCSL Ib Equity	149.05	654.09	Future Supply Chain Solutions
43686	Future Lifestyle	FLFL Ib Equity	131.65	2656.37	Future Lifestyle Fashions Ltd
66042	Future Retail	FRETAIL Ib Equity	117.3	6360.03	Future Retail Ltd