How Future Retail is at JioMart's mercy

How Future Retail is at JioMart's mercy

Over 50 per cent of the food and grocery merchandise at the Future Retail stores are being supplied by JioMart, and the deal is an extended credit period

As Future Group Chairman Kishore Biyani fights a messy legal battle with the mighty Amazon, his flagship company, Future Retail, is struggling to survive. If the Big Bazaar or EasyDay store in your neighbourhood looks well stocked, it's not because the retail company has managed to pull itself out from the brink of bankruptcy, but because it's likely new owner, Reliance Retail, has been making sure that the stores have enough merchandise to generate footfalls and thereby sustain the business month-on-month.

Over 50 per cent of the food and grocery merchandise at the Future Retail stores are being supplied by JioMart, and the deal is an extended credit period. A large chunk of suppliers have snapped ties with the retailer as they have huge outstanding, which the retailer hasn't been able to settle. Its apparel business, FBB, which largely consists of private brands is slightly better off, as it is currently trying to get rid of the inventory it had accumulated during the COVID-19 lockdown.

"Since the food and grocery inventories are getting filled up, customers are visiting our stores to fill up their grocery basket, and in the bargain, they are also shopping for apparels," explains a Big Bazaar store manager.

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Since the retailer has managed to get extended timelines from JioMart, it is using the cash being generated by the business to pay its employees' salaries, which have been drastically cut down. Ever since the retail major's debt crisis came out in the open last year, it had to shut down several stores and let go of employees. It has also been struggling to complete the full and final settlements of many of its former employees.

Just when Biyani thought he could finally pay off his creditors the whopping Rs 12,000 crore debt he had accumulated by signing a Rs 24,000 crore deal with Reliance Retail, Amazon accused Biyani of not giving them the first right of refusal to buy Future Retail.

In October 2019, Amazon bought a 49 per cent share in one of Future Group's promoter-held company, Future Coupons, for Rs 1,431 crore. This gave Amazon an indirect entry into Future Retail, as Future Coupons owns a 9.8 per cent share in Future Retail, that owns formats such as Big Bazaar and Easy Day. The additional benefit offered to Amazon was that after three years of signing the deal and within 10 years, Amazon will have the first right to get the promoter's share in the company (subject to FDI in Indian retail being permitted).

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There was a separate agreement signed between Future Coupons and Future Retail. Under this agreement, since Future Coupons had a 9.8 per cent stake in the latter, the promoters of Future Retail can't sell their own shares to any third party except for Amazon. Reliance was also part of the third party list, along with 15-16 other companies. The agreement also said that in case of a disagreement between Future Coupons and Amazon, then the case will go for arbitration to the Singapore Interational Arbitration Court (SIAC).

By end of December 2019, when the Future Group companies' shares were in the region of Rs 500-600 per share, Biyani had pledged them in order to take loans from financial institutions. The trouble began in March 2020, when the shares tumbled down to below Rs 100 and more and more shares went to the lenders, as value of collateral dipped. COVID made things worse as all the stores were shut and were not generating revenue.

This is when, claim company insiders, Biyani approached Amazon to get its financial institutions to take over their loans and thereby safeguard the 9.8 per cent stake of Future Coupons in the retail arm.

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"When Amazon didn't give us any solution, that was the time we started talking to other potential buyers, including Reliance. On August 29, we announced the deal with Reliance Retail. Since we had a deal with Future Coupons, we took a NOC from Future Coupons, and they gave it to us. During this time there were enough meetings that happened between Amazon and Future Group and Amazon agreed. Amazon was part of all discussions and they knew what was happening," says a company insider.

Amazon sent a notice to Future in early September accusing the latter of breaching contract. They went to the emergency arbitrator in Singapore and got an interim award which said that the deal had to be put off. Thereafter both Amazon and Future have been making rounds of various courts in India and have had their share of highs and lows.

Future is currently contesting a recent Delhi High Court ruling that had ordered the company to halt the sale of its retail assets to Reliance Industries. The deal has already got a nod from the Securities and Exchange Board of India (SEBI) and Competition Commission Of India (CCI).

On the other hand, Biyani has been banned by SEBI from accessing the securities market for a year on charges of insider trading between March and April 2017.

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