Independent Director of Future Retail Rejects Amazon’s Bailout Offer

The independent board of Kishore Biyani’s Future Retail Limited (FRL) have approved the deal with billionaire Mukesh Ambani’s energy-to-telecom conglomerate Reliance and have turned down Amazon‘s offer to participate in FRL.

In a letter to Amazon, the independent directors stated that they accepted the Reliance deal because it met the needs for funds to pay off public sector bank lenders and suppliers of goods.

“It (Reliance’s offer) enables FRL satisfy practically all of FRL’s liabilities and, in the process, helps protect the investment of small shareholders and the jobs of over 25,000 people,” FRL wrote in a letter read by Business Standard on January 25, 2022.

FRL stated that it does not believe that further discussion of Amazon’s proposition expressed in the letter would be beneficial. “We would have been pleased to engage with you if you were serious about providing funds to the tune of Rs 3,500 crore within the timetable (in order to repay banks and avoid NPA designation),” FRL said. “However, it is now evident that your letters were really a game of smoke and mirrors designed to garner maximum media attention and generate headlines stating that ‘Amazon is willing to assist.'” FRL stated that it would not consider any Amazon proposal unless it had an actual solution that met FRL’s capital requirements and addressed the concerns of its stakeholders in a legally compliant manner.

The letter was also written to the Directorate of Enforcement, Ajay Tyagi, head of the Securities and Exchange Board of India (SEBI), and Ashok K Gupta, chairperson of the Competition Commission of India (CCI). Top executives at Union Bank of India, Bank of India, State Bank of India, Bank of Baroda, Central Bank of India, Punjab National Bank, UCO Bank, and Indian Bank have also received the letter.

FRL told Amazon that it had requested Amazon’s assistance in locating finances in sufficient quantities to avoid bankruptcy, but that Amazon was unable to provide a clear and credible solution that addressed FRL’s concerns.

“We refer to your letter of January 22, 2022, received on January 23, 2022 at 01:22 am time in our e-mail,” FRL wrote in a letter to Business Standard dated January 25, 2022. “This isn’t Future Retail Limited’s (FRL) or its management’s first interaction with Amazon. FRL had asked for your assistance in locating finances in adequate quantities to avoid bankruptcy, but you were unable to come up with a clear and practical solution that addressed FRL’s concerns. Your assertions that there were delays or hesitation on the part of FRL are false.”

Amazon emphasized its desire and ability to assist FRL’s independent directors, including Gagan Singh, Ravindra Dhariwal, and Jacob Mathew, in a letter sent to them last week. The solution presented in the term sheet between Amazon-backed private equity company Samara Capital and FRL, in which the former recommended an investment of Rs 7,000 crore in the Kishore Biyani firm, was one example.

FRL has stated that it will consider any plan that offers a comprehensive solution for FRL’s banks, employees, shareholders, vendors, and other stakeholders. It stated that the project fails to meet the following basic criteria: financial speed and timing, legal compliance, and adherence to regulatory judgments, all of which you have decided to ignore. This makes it clear that your offer is more for show than to address the dilemma in which FRL finds itself. The firm also stated that any proposal will be evaluated in accordance with FRL’s legal requirements.

The offer in Amazon’s letter, according to FRL, is to purchase all of FRL’s retail assets for Rs 7,000 crore. This price, it claimed, is much less than the amount required to settle FRL’s overall liabilities, which total Rs 12,027.31 crore, including FRL’s bank liabilities and a portion of the committed vendor payments due in March 2022.

The FRL letter stated, “When viewed in the context of the financials of the Reliance transaction by way of the Scheme of Arrangement, your offer is simply an attempt to buy the FRL assets on the cheap.”

FRL had asked Amazon to certify whether they had the power to negotiate and conclude a purchase on behalf of Samara Capital in a letter dated January 22, 2022, according to FRL. Amazon responded by clarifying that it will “promote” negotiations, while the specific role and relationship between Amazon and Samara Capital remain unclear. According to FRL, Amazon should operate transparently when it comes to sponsoring an Indian publicly traded company.

“Your earlier letter suggested that discussions would be led by an Amazon representative (i.e. Abhijeet Muzumdar, head of Amazon Smbhav Venture Fund and Corporate Development at Amazon), and now a Samara representative (i.e. Sumeet Narang, managing director at Samara) is being proposed, without even a confirmation from Samara Capital that they have authorised you to make statements on their behalf,” FRL said.

According to FRL, foreign investment in multi-brand retail is illegal without government licence, and any investment by Samara must be transparent and not an indirect investment by Amazon, which is against the laws. To do this, Amazon and Samara must clearly disclose the ultimate beneficial owners and contributors to the Samara fund in India to FRL and the authorities through several stages. “Amazon should also confirm that it has neither directly or indirectly funded any amount to Samara,” FRL added.

According to sources, Samara Capital, a private equity group, inked a non-binding term sheet with FRL in June 2020 for a Rs 7,000 crore investment. This was two months before Future Group, led by Kishore Biyani, announced a Rs 24,713 crore (or $3.4 billion) merger pact with Mukesh Ambani-led Reliance Industries (RIL) by the end of August 2020.

Amazon had also been asked by FRL to affirm their willingness to fund Rs 3,500 crores by Monday (January 24). It had stated that any such proceeds will be used to reimburse FRL’s lenders, as if they are not paid by January 29, 2022, FRL’s accounts will be categorised as non-performing assets (NPAs) (non-performing asset). According to FRL, Amazon has chosen to disregard this regulation.

“It is now clear that you were not and still are not serious about funding FRL within the specified timescales, but instead wish to delay the sale of small-store formats assets to repay lenders in order to avoid an NPA designation,” FRL claimed in the letter.

FRL has said that it has a clear need for cash, and Amazon is instead proposing an alternative and a long due diligence effort, without even bothering to establish a funding timeframe, despite FRL directly asking it to do so.

It’s worth repeating that Amazon is aware that FRL need cash totaling approximately Rs. 12,027.31 crores to cover bank liabilities and a portion of committed vendor payments due till March 2022. In comparison to the current proposed Scheme of Arrangement, which will allow FRL to repay all of its bank debts and suppliers, save the jobs of 25,000 employees, and protect the investment of lakhs of small shareholders, Amazon’s proposal that “FRL sells all of its retail assets to Samara for a total consideration of Rs.7,000 crores is a sorry attempt to buy FRL’s assets on the cheap,” according to the letter. It claimed that this has left FRL in a terrible situation, with bankruptcy procedures looming – all of which has resulted in public injury and harm. The letter claimed, “This attempt appears to be a public relations exercise in order to create media headlines.”

Amazon’s attempts to draw parallels between the Scheme of Arrangement and the proposed transaction with Samara Capital, according to FRL, are misleading. The Scheme of Arrangement will be a court-approved transaction that has already acquired regulatory clearances from SEBI and the CCI. “It complies completely with Indian laws,” FRL stated.

Fundamentally, the Scheme of Arrangement offers FRL a holistic solution for meeting its numerous liabilities, but the proposed transaction with Samara Capital does not, for the reasons stated above. “Your (Amazon) suggestion that we unwind some transactions involving outstanding advances and security deposits misses the point. “The time has come to focus on and find a solution to FRL’s immediate liquidity issues,” FRL stated.