The board of directors of Future Retail on Saturday gave in-principal approval to the conversion of already allotted equity warrants to a promoter group entity, Future Coupons (FCPL). Once completed, Future Coupons, which till now held no shares in the retail arm, would own 7.5 per cent of Future Retail.
Out of the 3.96 million warrants issued to FCPL, the board Saturday approved conversion of 2.48 million warrants to the same number of Future Retail (FRL) shares, which translates into 4.7 per cent of its total shares. It further informed the Bombay Stock Exchange that the rest 1.48 million equity warrants can be converted any time before October 22.
Issued at a price of Rs 505 per warrant, the deal effectively means FRL would get Rs 2,000 crore from FCPL against the 3.96 million warrants.
The announcement comes after American e-commerce giant Amazon secured approval from the Competition Commission of India (CCI) to acquire a 49 percent stake in FCPL in November. Amazon.com NV Investment Holding, a direct subsidiary of Amazon.com, Inc, will receive both shares with voting rights and non-voting share of FCPL.
According to the CCI order, the deal involved two other key entities — Future Corporate Resources (FCRPL) and FRL. The details of the transaction between Amazon.com and FCRPL are not yet clear. FCRPL, a promoter group entity, is the largest owner of FRL with about 47 per cent of the retailing entity’s shares in its kitty.
Thus, after the deal is complete, Amazon-backed FCPL will hold around 7.5 per cent of FRL’s shares.
The money that Amazon is investing to purchase FCPL shares (at Rs 660 each), estimated at Rs 1,500 crore, may have been routed to FRL that is in need of funds.
The retailing arm of the Kishore Biyani family plans to invest in various projects including purchasing warehouse assets from Future Enterprises. Future Enterprises (FEPL) – a group entity that develops, owns and leases retail and warehouse infrastructure – is struggling with mounting debt. Its total debt rose 15 per cent year-on-year to Rs 6,717 crore at the end of 2018-19. The group has already announced plans to invest about Rs 4,000 crore into FEPL through FRL.
In fact, the FRL board Saturday informed the exchanges that it is planning to raise up to Rs 3,500 crore (US$ 500 million) through the dollar-denominated long-term borrowings to fund the asset purchases in tranches or at one go.
Further, the Future group is gearing up to expand its food-on-demand programme that would require it to invest Rs 1,000 crore and build hundreds of cloud kitchens and dozens of distribution centres. Named as India Food Grid, the project will connect the entire country through a multi-layer network.
According to Biyani, chief executive of Future Group, the plan is to integrate his food delivery business with his mobile application Future Pay to improve penetration. “Whichever way food is being consumed in India, we want to be part of that business,” he told this publication earlier.
Amazon’s investments are not without rationale, either.
Bound by a web of new rules for e-commerce players that stops them from selling products from subsidiaries on their own platforms beyond a certain threshold, Amazon’s investment in the group is aimed at bypassing the roadblocks. The indirect approach in acquiring equity stake in one of its rival entities is designed to make sure it can continue to sell products from Future group on its e-commerce platform.