Embattled retailer Future Retail Ltd (FRL) on Tuesday moved the Supreme Court to avert insolvency proceedings over missing a loan repayment deadline, even as its independent directors rejected an Amazon-supported offer to sell the company businesses at less than a third of what Mukesh Ambani's Reliance is offering.
India's second-largest retailer, which operates multi-brand retail chains such as Big Bazaar, Easyday and Heritage, failed to pay Rs 3,494.56 crore to lenders by the due date of December-end and sought a 30-day grace period to resolve the situation.
Unable to find money, it moved the apex court seeking to restrain its lenders from declaring the company a defaulter, which can invite initiation of insolvency proceedings.
In the petition, Future cited its dispute with partner Amazon, which has stalled its Rs 24,713 crore retail asset sale to Reliance, to seek a restraint on lenders from declaring it as a non-performing asset (NPA), court filings showed.
In the petition, which also contained a January 15 letter from the State Bank of India (SBI) warning it of the possibility of initiating insolvency proceedings if it did pay its dues, Future asked for more time for loan payment and requested the Supreme Court to "extend the timeline stipulated under the Framework Agreement for monetization of the Small Format Stores."
Future "finds itself in a peculiar position where it wishes to comply" with its obligations to lenders, but "the litigation with Amazon is effectively preventing it from doing so", the filing said as it sought quashing of default notices from its lenders.
Amazon has opposed the Future-Reliance deal saying it violates a 2019 pact it had signed with the retailer when it invested $200 million in a Future unit.
The US firm's position has so far been backed by a Singapore arbitrator. The matter is now in courts.
With the legal dispute stalling funding options, independent directors of Future Retail Ltd (FRL) last week asked Amazon if it was willing to provide a long-term loan to avoid default due on January 29.
Amazon replied that it was willing to financially assist Future Retail through Samara Capital's Rs 7,000 crore deal to take over businesses such Big Bazaar, but the retailer must shelve its Rs 24,713 crore deal with Reliance.
Independent directors have now turned down Amazon's offer, saying it is "plainly an attempt to buy the Future's assets on the cheap".
In a letter on Tuesday, they said it is now clear that Amazon's letters were "just a game of smoke and mirrors".
"Accordingly, we will not be assessing any proposals from you, until an actual solution which meets FRL's capital requirements and addresses concerns of its stakeholders, in a legally-compliant manner, is tabled," said the letter, a copy of which was seen by PTI.
The independent directors said the price of Rs 7,000 crore is "significantly below the amount needed to discharge FRL's total liabilities".
"...FRL's Bank liabilities and part of the committed vendors payments till just March 2022 itself aggregate to Rs 12,027.31 crore.
"When seen in the context of the financials of the Reliance transaction by way of the Scheme of Arrangement, your offer is plainly an attempt to buy the FRL assets on the cheap," the letter stated.
It also noted that the independent directors of FRL had accepted the transaction with Reliance as it addresses the need of funds to pay off public sector lenders, suppliers of goods and helps FRL to meet almost all its liabilities, and in the process helps protect the investment of small shareholders and jobs of over 25,000 employees.
Copies of the letter were also sent to the Enforcement Directorate, SEBI, Competition Commission of India (CCI), lenders like State Bank of India, Union Bank of India and Bank of Baroda as well as FRL's board of directors.
Terming the comparison between Reliance's offer and proposed transaction with Samara Capital as "misplaced", the independent directors said the Scheme of Arrangement with Reliance Retail will be a court-approved transaction, and has already received the approvals of various regulators, including SEBI and CCI and that it is fully-compliant with Indian laws.
The independent directors, in the January 25 letter, also raised concerns around the structure of the proposed deal with Samara.
"In response you have clarified that Amazon would facilitate discussions, with your exact role and relationship with Samara Capital being unclear.
"Amazon should act with transparency in matters of funding of an Indian listed company," it said.
The independent directors also highlighted that foreign investment in multi-brand retail is impermissible without government approval and any investment by Samara must be transparent, and not an indirect investment by Amazon contrary to the rules.
"For this purpose, it is necessary that the Amazon / Samara transparently disclose to us and the authorities, the ultimate beneficial owners / contributories to the Samara fund in India through various layers. Further, Amazon should confirm that it has not directly or indirectly funded any amount to Samara," it said.
The independent directors said FRL has a clear urgency of funds, and Amazon had instead suggested an extensive due diligence exercise as an alternative and has not even bothered to provide any timeline for funding, despite the directors specifically asking it to provide clarity on this point.
After it missed the due date (December 31, 2021), FRL got a review period of 30 days (from the due date) in terms of the RBI circular dated August 6, 2020, on one-time restructuring (OTR) scheme for COVID-19-hit companies.
FRL had, last year, entered into the OTR scheme with a consortium of banks and lenders and was to discharge "an aggregate amount of Rs 3,494.56 crore" on or before December 31, 2021 for that.
In its petition before the Supreme Court, FRL has also requested the apex court to issue an order or direction to its lenders to "extend the "cure period"/ "review period" of 30 days under the Framework Agreement" and relax the timeframe.
In August 2020, the Future Group had announced a Rs 24,713-crore deal for sale of its retail and wholesale business, and the logistics and warehousing business to Reliance Retail Ventures Ltd, a subsidiary of Reliance Industries Ltd.
However, e-commerce major Amazon is contesting the deal through its 49 per cent stake in Future Coupons Pvt Ltd (FCPL), which is a shareholder in Future Retail.
The matter is presently in dispute before the Supreme Court as well as the Singapore International Arbitration Centre (SIAC).
Reliance Retail Ventures has for the second time extended the timeline for completing its Rs 24,713-crore deal with Future group to March 31, 2022 as it still awaits regulatory and judicial clearances.
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