In the future retail war against Reliance Industries, Amazon makes the decision not to make big sales
Future Retail’s battle for assets near bankruptcy has an unexpected sign – when a tycoon simply takes over the shopping aisles.
Finally, Indian billionaire Mukesh Ambani settled the dispute over who should own the alleged Future Retail Ltd assets not in an arbitration court in Singapore, or in a courtroom. project in New Delhi, which is in a shopping aisle.
Future Retail has leased store space from Reliance Industries Ltd. of the tycoon. Indeed, it only continued to operate under Ambani’s prohibition because Future could not offer rent. But with Amazon.com continuing to block Reliance’s $3.4 billion purchase of Future properties, Ambani decided to make the acquisition an accomplice: He ended the lease and is taking control of the assets.
That’s an impressive mark for a three-year-old story. Amazon was Future’s original rescuer, investing $192 million in a voucher unit controlled by founder Kishore Biyani so he could use the money to stabilize the indebted Indian retailer pile.
The condition of the 2019 deal was that the property – about 1,500 stores nationwide – would not be sold to Ambani, who owns India’s largest retail empire. When Biyani did exactly that after the Covid-19 shutdown, Amazon began suing Future for breach of contract. The deal with Reliance was in limbo – until Ambani decided he had enough.
The desperation can be clearly seen in Reliance’s future messages. “Please confirm that there will not be any discount in payables,” announced March 2 from Future, as reported by Saritha Rai and PR Sanjai of Bloomberg News. Then a paragraph follows, “It is important for our stakeholders to have visibility into the final review.” Retail Is the Future Living Under a Rock? The Ambani bailout was clearly always a commercial deal, not a humanitarian mission. Future’s job is to take care of its stakeholders, including creditors.
And where is Amazon in all of this? By now, it must be known that hosting Ambani at home is futile. As the ground changed from beneath it, Amazon entered into an out-of-court settlement to pour its money in Future Coupons Pvt. – it’s its first move in the movie. Amazon cannot rescue Future Retail directly because India’s draconian foreign direct investment rules are getting in the way. So it did the next best thing: funded a privately held Coupon and thus indirectly exercised some control over Retail.
That control proved flimsy. After agreeing to Reliance’s deal, Future wants to withdraw from its contract with Amazon. The company’s independent directors have complained to India’s trust that the multinational has intentionally misled authorities about the true nature of the Coupon deal, making Amazon effective results in the retail sector, violating India’s 2018 foreign direct investment law. The regulator promptly suspended the prior approval of Amazon’s investment and the Delhi High Court halted the work of the Singapore arbitration panel. (Singapore is well known as an Asian arbitration hub attracting many city-state cross-border transactions.)
But if the near-bankrupt company with negative $280 million in assets is betting that Rescuer #2 will wait patiently as it settles legal troubles with Lead #1, it’s hit. wrong price situation. According to Future Retail’s March 9 disclosure, 342 large stores and 493 smaller stores – accounting for 55% to 65% of retail sales – have so far received notices of termination of leasebacks from organizations. Reliance position.
It’s hard for the current Future to look shocked, shocked that its favorite savior is moving in before completing the official purchase, doing everything to create an omelet that any official No ability can be ignored: Possession is, after all, nine-tenths of the law. At the end of January, Amazon offered the losing company an option for an additional $914 million in bailout, but Future’s independent directors judged the offer inappropriate, given the debt that it owed. increase. As things stand, Future’s 2025 bondholders have to figure out if they’re going to be created in their entirety. Transacting around 60 cents to dollars through stealthy redemption, the notes do not appear to show creditor confidence.
How does physical takeover work? There is inventory, furniture, lighting, and point-of-sale equipment, all of which are pledged to creditors. “It may not be realistic for you to insist on removing all such assets from the store, and such removal could result in an irrecoverable loss in value,” a letter dated May 5 said. 3 to Reliance, this time by Future Lifestyle Fashions Ltd. “We will ask your cargo itself not to take any action regarding the property or the premises until we can discuss…. ”
There is nothing left for the “commodities” at Reliance to discuss. The result: For the Future Retail push, the Indian justice system has put a bullet through the country’s arbitration law, never giving the country a chance to resolve a commercial dispute. simple. As a result, the Future – and India – must suffer.
It is clear that, when faced with muscular opponents, the domestic contract enforcement rate is very small. No one should complain if foreigners are skeptical of India’s reported strides in “easiness of doing business”. But then it was a rapidly modernizing market with 1.4 billion consumers. Amazon can’t give it up. The Seattle-based company alleged in a March 15 newspaper ad that Future was trying to remove the “basis of the dispute” by transferring its stores to Ambani in a “secret way.” “. The e-commerce giant also informed India’s highest court that armistice talks had failed. It’s hard to say whether Amazon’s continued protests will prevent Future’s lenders from de facto advocating a change of control — or if it’s already too late for that.
As for Future, it’s not much of a thing. Extinction is a feature of capitalism. But the defiled way that a modern Indian retail pioneer has ripped individual stores apart because of the bad choices they’ve made should be a case study. Before school gets busy, however, creditors need to figure out where shopping racks and cash machines are located. It’s their collateral, after all, and the overarching lesson of this contest is that everyone should take what they can. While the last stock.
Andy Mukherjee is a Bloomberg Opinion columnist on financial services and industry companies. He was previously a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
