Kishore Biyani’s Future Retail Seals Deal With Reliance Retail

Kishore Biyani’s Future Enterprises finalises deal to sell retail business to Reliance Retail.

Mukesh Ambani and Kishore Biyani (Source: BloombergQuint)
Mukesh Ambani and Kishore Biyani (Source: BloombergQuint)

In a deal that marks major consolidation among India’s big box retailers, Kishore Biyani’s Future Group will sell its retail, wholesale, logistics and warehousing assets to Reliance Industries Ltd.’ retail arm Reliance Retail Ventures Ltd. at value of Rs 27,513 crore.

"With this transaction, we are pleased to provide a home to the renowned formats and brands of Future Group as well as preserve its business ecosystem, which have played an important role in the evolution of modern retail in India," said Isha Ambani, Director at Reliance Retail.

The transfer of the assets and liabilities will take place after a reorganisation at Future Group in which key group companies will be merged into Future Enterprises Ltd., according to a company filing with the stock exchanges.

The deal is cash flow positive as they (Reliance) are getting a Rs 30,000 crore business for an initial investment of Rs 24,000 crore and further investment, said Deven Choksey, managing director of KR Choksey Investment Managers.

Reliance Retail’s grocery business is around Rs 35,000 crore whereas the grocery business of Future Group is around Rs 30,000 crore, Choksey estimated. “With this acquisition, Reliance Retail will become the largest grocery player in the country with close to Rs 65,000 crore of business.”

It’s a positive move for banks and Reliance Retail, as after the transaction Reliance will hold one third of the organised retail market in India with a growing Jiomart product portfolio, Sameer Kalra, founder of Target Investing, said to BloombergQuint. Banks will get large relief from having avoided an IBC process, Kalra added referring to the large debt pile at the Future Group.

Kishore Biyani is among the first big box retailers in India but has run up a huge debt bill, an estimated Rs 15,000 crore, that his group companies have been struggling to pay. Last week, Future Retail Ltd. averted a debt default at the last minute.

And though at one time it seemed Biyani would successfully court Amazon Retail as a white knight, that didn’t progress beyond a miniscule investment. Eventually, it came down to the other big box player in India —Mukesh Ambani’s Reliance Retail, a subsidiary business of Reliance Industries Ltd.

3-Step Deal

In the first of a three-step process, Biyani will merge listed entities Future Retail Ltd., Future Lifestyle Fashions Ltd., Future Consumer Ltd., Future Supply Chain Solutions Ltd. and Future Market Networks Ltd. will merge into Future Enterprises.

  • Futures Enterprises to issue nine shares to Future Consumer shareholders for every 10 shares held by them.

  • Future Enterprises will issue 116 shares to shareholders of Future Lifestyle Fashions for every 10 shares held by them.

  • Future Enterprises will issue 18 shares to shareholders of Future Market Networks for every 10 shares held by them.

  • Future Enterprises will issue 101 shares to shareholders of Future Retail Ltd. for every 10 shares held by them.

  • Future Enterprises will issue 131 shares to shareholders of Future Supply Chain for every 10 shares held by them.

In the second step,

Future Enterprises will by way of a slump sale transfer the retail and wholesale business to Reliance Retail and Fashion Lifestyle Ltd., a wholly owned subsidiary of Reliance Retail Ventures Ltd. Key formats like Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory will be sold for for Rs 5,628.33 crore.

Reliance Retail will also take over certain borrowings and current liabilities as part of the business, and pay the rest in cash.

Future Enterprises will also transfer assets of the logistics and warehousing business on a slump sale basis to Reliance Retail Ventures Ltd. for Rs 25.22 crore.

In the third step,

Reliance Retail and Fashion Lifestyle will invest Rs 1,200 crore in a preferential issue of shares by FEL for a 6.09% stake.

It will also invest Rs 400 crore towards FEL warrants. On conversion, the investment will amount to Rs 1,600 crore and result in an additional stake of 7.05%.

The shares and warrants will be issued at Rs 17.65 apiece. This takes the value of the residual company to nearly Rs 21,309 crore.

As a result of this reorganisation and transaction, Future Group will achieve a holistic solution to the challenges that have been caused by Covid and the macro economic environment.
Kishore Biyani, Group CEO, Future Group  

$3.7 Billion Deal

The total value of the slump sales will be Rs 24,713 crore, according to the Reliance Retail Ventures press release. Alongwith the Rs 2,800 crore investments in FEL, the deal size amounts to Rs 27,513 crore.

Besides Rs 5,653. 33 crore towards the retail, wholesale, logistics and warehousing assets being transferred, the slump sale will also include a Rs 900 crore payment to FEL on account of certain debt and vendor liabilities, according to a senior executive aware of the deal on condition of anonymity. That indicates the deal includes transfer of approximately Rs 18,000 crore debt.

The residual FEL will have manufacturing and distribution of FMCG goods and integrated fashion sourcing and manufacturing business and its insurance joint ventures with Generali and joint ventures with NTC Mills.

How Kishore Biyani’s Debt Profile Changed

The Future Group

Kishore Biyani is among the first big box retailers in India, building out a large retail and consumer products business over decades. As on March, the group had 1,388 stores under the Future Retail umbrella and 348 stores under Future Lifestyle Fashions Ltd.

But in building this out Biyani racked up considerable debt. The Future Group, according to data compiled by BloombergQuint, had debt of more than Rs 15,000 crore in the year ended March 2020.

Biyani’s promoter stake in most the group’s listed companies is pledged - as high as 70% in some of its subsidiaries.

Adding to the pressure, the value of these companies’ shares have plummeted since early this year as a result of the disruption caused by the Covid-19 outbreak and subsequent national lockdowns.

Future Group’s retail business is vested under the listed entities Future Enterprises, Future Consumer Ltd., Future Lifestyle Fashions and Future Retail. Its non-retail business is undertaken through Future Supply Chain Solutions Ltd. and Future Market Networks Ltd.

Biyani holds a majority stake in these listed entities through four firms: Central Departmental Stores Private Ltd., Future Corporate Resources Pvt. Ltd., Future Capital Investment Pvt. Ltd. and Ryka Commercial Ventures Pvt Ltd..

The full extent of promoter debt isn’t publicly available. However, the total debt of Future Corporate Resources and Central Departmental Stores for the year ended March 2019, according to information on website of Ministry of Corporate Affairs, is nearly Rs 8,519 crore.

As for Future Enterprises, the company leading this reorganisation and sale, it posted a cash profit and operating margin of Rs 787 crore and 28%, respectively, for the nine months through December 2020. That corresponding figures for the year-ago period stood at Rs 640 crore and 24%. Revenue grew 4% to Rs 4,582 crore and net profit contracted by over a third to Rs 25 crore.