Future Retail Insolvency – To be or not to be

Future Retail is in a dilemma. The company wants to be referred to the NCLT for bankruptcy protection. The consortium of banks led by Bank of India, which has exposure to Future Retail to the tune of over Rs.5,322 crore, has also shown keenness to refer FRL to the NCLT. However, the objection is coming from Amazon. Incidentally, Amazon has an indirect stake in Future Retail via its stake in Future Coupons. It had objected to the merger deal between FRL and Reliance Retail on the grounds that it interfered with their first right of refusal.

The issue once again came into the limelight after the NCLT bench reserved its order on admitting debt-laden Future Retail into the bankruptcy process. What it essentially means is that the bench of judges has heard all the oral arguments from both the contesting parties and, rather than reaching for an immediate decision, a decision would be given at a later date. Generally, the date is not specified. The idea is that they get more time to deliberate on the subject considering the complexities and the various dimensions involved in this deal.

Ironically, the objection to the petition to refer Future Retail to bankruptcy has come from Amazon. Submitting arguments to the Mumbai bench of the NCLT, the Amazon counsel underlined that Bank of India’s petition to initiate insolvency proceedings against Future Retail was "malicious" in nature. Amazon counsel also alleged that the lenders to Future Retail, including Bank of India, had explicitly colluded with Future Retail by initiating sale of the distressed company’s assets to Reliance Retail, depleting value of owners substantially.
 

On 14th April, Bank of India had initiated insolvency proceedings against Future Retail for non-payment of dues. Future Retail owes banks a sum of Rs.5,322 crore. Other banks like Union Bank of India, SBI, Bank of Baroda, and IDBI Bank are also part of the consortium. It may be recollected that Reliance Retail had made a binding $3.4 billion deal with Future Retail to buy their entire business, but that deal had got badly stuck after Amazon decided to drag Future group to the Singapore International Arbitration Centre (SIAC).
Reliance has now already withdrawn its $3.4 billion offer officially since the secured creditors had not approved the deal and had voted against the scheme. Amazon has alleged that the entire plan was set up by Future group and the lending banks with the connivance of the Future group. By forcing FRL into liquidation, the banks would be left holding worthless dud loans in their books and would have no option but to write off such loans at zero residual value. Of course that now needs to be backed up with a proper justification.

How Amazon got involved in this mess?

The story dates back to the year 2019, when Amazon had invested a sum of $200 million in Future Coupons for a 49% stake. As a result of this deal, Amazon also got 7.3% effective stake in Future Retail. That is how the entire relationship started. At that point, Amazon had tried to block the deal by obtaining a freeze order from the Singapore arbitration court. However, the game changed tack when Reliance started taking over the assets of Future Retail since the Future stores were sub-let to Future group and they had defaulted.
Even at that point of time, Amazon had raised serious objections to this but meanwhile the CCI had objected to the Future coupons deal and even annulled the deal on the grounds that full disclosure was not made. Even as the final word is expected, FRL has officially shifted its assets to Reliance Retail. Of course, bankers and shareholders are left holding worthless paper for now.