Future Retail To Amazon: Show Me The Money (And FDI Compliance)

Future Retail Ltd.'s independent directors have raised some pointed questions in response to Amazon's offer to help the debt-ridden Indian retailer. Namely, how quickly will the cash be available, will the funding be FDI-compliant and what about FRL's other dues?

In a letter dated Jan. 19, the American e-commerce giant had reiterated its offer of financial assistance to Future Retail. The Indian retailer is set to default on a Rs 3,500-crore debt repayment to lenders by Jan. 29. Amazon's letter, reported by media earlier today, offered a Rs 7,000-crore cash infusion via private equity firm Samara Capital, an offer it had made earlier too.

But, accompanying the monetary assistance was a warning to FRL to not sell its small-format store chains Easyday and Heritage Fresh. Such sale would be in violation "of the injunctions which continue to operate and are binding on FRL and directors of FRL, including the independent directors of FRL", the Amazon letter said. The injunctions refer to an ongoing legal battle in which Amazon has sought to block FRL's Rs 27,513 crore deal with Reliance Retail Ventures Ltd. on grounds it has certain rights in the Future Group company.

The delay in the Reliance deal has prompted the cash-strapped FRL to consider selling its smaller retail chains to replay lenders. Failure to repay the debt will label it a non-performing asset.

Amazon's letter was addressed to the three independent directors at FRL—Gagan Singh, Ravindra Dhariwal, Jacob Mathew—and a host of banks that are lenders to the company. On Jan. 21, the independent directors responded.

"Since you are objecting to the sale of small-format sales, the proceeds of which were to be used to repay lenders and thereby avoid NPA classification, please confirm that you are willing to fund this amount by Monday (January 24) through an unsecured, long-term loan, subordinated to FRL's existing lenders or any other mutually suitable and legally acceptable structure."

BloombergQuint has viewed copies of both letters.

Future Retail's Independent Directors Response To Amazon's Offer

In their response, FRL's independent directors have said the company's one-time restructuring agreement with the lenders was conditional on monetising its small-store format business, including Easyday and Heritage brands, by December 2021.

Having already missed the Dec. 31 deadline, the company has until the end of this month to come up with the money for the rupee-denominated debt.

The 30-day grace period expires on Jan. 29 and it is "unfortunate" that Amazon is attempting to prevent the lenders from realising their dues, the letter said.

Also, that assets are encumbered to lenders and their right to enforce security cannot be constrained by shareholders' agreements, such as the one between FRL and its parent Future Coupons Pvt. and FCPL and Amazon.

'Offer Lacking In Detail'

The independent directors of FRL have also sought three clarifications before meeting Amazon's nominee, Abhijeet Muzumdar, to discuss the American company's offer to help via a Samara Capital-led cash infusion...

• Clarity on how Future Retail would service its dues as Amazon's proposed infusion is lower than the company's liabilities of worth Rs 9,119.30 crore due to lenders up to March 2022. As well as the

  Rs 2,908 crore required for operations up to March 2022.

• Timing of the cash infusion.

• How the infusion will be implemented in a legally-compliant manner since FRL is in the multi-brand retail sector in which foreign direct investment is restricted. And whether the manager of Samara Capital is owned-and-controlled by resident Indians.

The directors have also sought clarity if Amazon has any authority to negotiate and finalise the transaction on Samara Capital's behalf.