FRL independent directors turn down Amazon’s bailout offer

PTI, Jan 25, 2022, 3:23 PM IST

Independent directors of Future Retail Ltd (FRL) have turned down Amazon’s offer of financial support to the company through a deal with private equity firm Samara Capital, saying the offer is ”plainly an attempt to buy the FRL assets on the cheap”.

FRL’s independent directors had last week asked Amazon if the e-commerce giant was willing to give a long-term loan to avoid default on repayment of Rs 3,500 crore loan due on January 29. Amazon replied that it was willing to financially assist Future Retail through the Samara Capital deal but the retailer must shelve Rs 24,713 crore deal with Reliance.

The independent directors of FRL, in a letter on Tuesday, 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.

Amazon had told FRL that Samara Capital remains interested in buying out the debt-strapped retailer’s businesses such as Big Bazaar for Rs 7,000 crore, and had asked FRL to provide its financial details to Samara Capital for the private equity fund to conduct expedited due diligence.

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 crores. 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.

The letter also noted that the independent directors of FRL had accepted the transaction with Reliance as it addresses the needs of funds to pay off public sector bank lenders, suppliers of goods and helps FRL to meet almost all FRL’s 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 Enforcement Directorate, Sebi, Competition Commission of India, lenders like State Bank of India, Union Bank of India and Bank of Baroda as well as FRL 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.

Future and Amazon have been locked in a bitter legal tussle after the US e-commerce giant dragged Future Group to arbitration at the Singapore International Arbitration Centre (SIAC) in October 2020, arguing that FRL had violated their contract by entering into a deal for the sale of its assets to billionaire Mukesh Ambani’s Reliance Retail on a slump sale basis.

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 “have not even bothered to provide any timeline for funding, despite us specifically asking you to provide clarity on this point”.

Meanwhile, in a separate development, FRL which operates multi-brand retail chains such as Big Bazaar, Easyday and Heritage, among others, has approached the Supreme Court requesting to pass a direction to its lenders from declaring the company as a non-performing asset in case of a default of Rs 3,495 crore loan dues.

Last month, it had missed the due date for the payment of Rs 3,494.56 crore to banks and lenders as it could not sell assets due to its ongoing litigation with Amazon, impacting its monetisation plans. It has time till the end of this month to make the payment.