Reliance’s $3.4 Billion Deal With Future Group Temporarily Halted

(Bloomberg) -- Future Retail Ltd.'s dollar bonds plunged on an Indian court temporarily restraining parent Future Group from selling its retail assets to Reliance Industries Ltd., after Future's partner Amazon.com Inc. had sought the suspension.

The Delhi High Court on Tuesday ordered the Future Group and Indian authorities to ensure the status of the indebted Indian retailer's assets are maintained as is, putting on hold any further steps toward completing the $3.4 billion sale to billionaire Mukesh Ambani's Reliance conglomerate. Future Retail's dollar bond due January 2025 tumbled 7.4 cents to 78.8 cents on Wednesday, the sharpest drop in three months.

Amazon, which is opposing the deal with an eye to dominating a large and vital consumer market, alleges that the plan violates its own contract with Future Group. It had filed an urgent petition last week seeking the suspension. The order can be challenged in a higher court.

The freeze bolsters the Jeff Bezos-led e-commerce giant, which had also urged the court to jail Future Group's founder and seize its assets for violating an October order from the Singapore arbitration court. The cash-strapped Indian retailer -- it risks bankruptcy if the deal with Reliance fails -- is caught between two of the world's richest men as they compete for dominance in India's estimated $1 trillion consumer retail market.

Why Amazon Is Feuding With a Retailer Acquired by Ambani: Q&A

The Indian court said it was of the prima facie view that the Singapore tribunal order, which asked Future Retail to not proceed with the deal, is enforceable in India.

Future Retail will “explore all legal remedies and take appropriate steps to pursue the scheme of arrangement,” it said in a stock exchange filing late Tuesday. Amazon appreciates the court's order, it said in an emailed statement.

Advantage Amazon

The stakes are high. For Amazon, which has struggled to gain traction in China where local giants dominate the e-commerce sector, India with a population of 1.3 billion is the only other market of similar size that can boost the company's growth. Blocking Reliance, which is already the country's biggest brick-and-mortar retailer, is key. Acquiring Future's assets will double Reliance's retail footprint -- an advantage Amazon is not willing to cede.

The Indian retailer's lawyer Darius Khambata told the court that Future Group wasn't willing to hold talks with Amazon to explore an amicable out-of-court settlement. Khambata said Future does not want to complicate matters as it has sought regulatory approvals for the asset sale deal. Amazon's lawyer said the e-tailer was willing to talk, without giving up its rights in the case.

“The Singapore arbitration decision places Future Group in an unenviable position with no immediate resolution in sight,” said Utkarsh Sinha, managing director at consultancy Bexley Advisors. A probable option now is bankruptcy court “where residual value could be unlocked, which in Future Group's case would be significant. The key question is who that value accrues to,” he said.

Wilful Disobedience

Amazon, in its recent petition, alleged that Future had displayed deliberate and willful disobedience of the overseas arbitration court's order. The e-tailer owns a minority stake in one of Future Group's firms and has accused the latter of violating a contract when it agreed to the deal with Reliance.

The legal victory for Amazon comes after its letters to Indian regulators seeking to stop approvals for the deal were unsuccessful. The antitrust regulator gave its approval in November. The stock exchanges earlier this month reported no adverse observations.

Read more: Indebted Indian Retailer Future Misses Dollar-Bond Payment

Future Retail Ltd., the group's flagship firm, missed a Jan. 22 deadline to make an interest payment on its dollar bond and proposed to meet the obligation in a month. The court order threatens its ability to repay.

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