Future Retail starts sale process to Reliance Retail

resr 5paisa Research Team

Last Updated: 10th December 2022 - 06:40 pm

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The legal battle between the Future group and Amazon is still on over the sale of the business to Reliance Retail. But, the process of Reliance taking over Future group may have already begun. As per reports, Reliance Industries is in the process of transferring over 200 Future retail stores against unpaid dues to Reliance Retail. These 200 stores will be rebranded as Reliance Retail stores. But how was this deal possible when it is sub-judice?

There is an interesting background to this story. Back in 2020, most landlords who had leased space to Future group for their stores, started to terminate these lease agreements. Meanwhile, several landlords had simultaneously approached Reliance Retail to assign the lease agreements so that things co go on smoothly. That is how 200 of the 1,700 stores of Future group fell into the lap of Reliance Retail over defaults by Future group.

In the last few weeks, Future group had received termination notices from several stores and in all these cases Future group will not have access to the premises due to the huge outstanding dues. Currently, in order to reduce losses, Future group is aggressively scaling down operations and reducing cash burn. Future group is trying to reduce its store count and focus more on online sales, but that would be a different subject for discussion.

For now, Reliance has already started the process of rebranding the 200 stores with their Reliance Retail brand name. In addition, the Reliance group is also issuing employment letters to more than 30,000 employees of Future Retail and Future Lifestyle and these letters are being issued by their manpower and staffing arm, Reliance SMSL. These offer letters have started going out to these employees during the previous week itself.

Interestingly, even as the legal case with Amazon was progressing, most of the suppliers and distributors admitted that they had been invoicing Reliance Retail for the stocks supplied to Future group, since the Future group did not have any funds to pay the distributors. In short, the entire operation of the Future group was already being handled by Reliance. Already, over the last 1 year, most Future group stores were being stocked by Reliance.

The Amazon case has only compounded the problems for the future group. With the Future group again defaulting on its loan commitments, banks have already classified the outstanding dues of Future group as NPAs. The objections raised by Amazon had derailed the Rs.25,000 crore absorption deal between Reliance Retail and Future group, but now it looks like the ownership will automatically pass on to Reliance via the store route. 

Most bankers continued to believe that the Reliance deal is the most workable option for Future Retail. One of the reasons the store ownership is passing on to Reliance is that the Future group has been finding it difficult to finance the working capital needs on a regular basis. Increasing losses at store level is a major and serious concern as it creates a vicious cycle where losses scale with operations. It made losses of Rs.4,445 crore in last 4 quarters. 

This is a new twist because the Delhi High Court is hearing 4 cases in the legal battle between Future Group and Amazon while the NCLAT is hearing Amazon’s case challenging the CCI order. It may be recollected that on grounds of propriety, the CCI had annulled the approval order given in 2019 for the deal between Amazon and Future Coupons. The hearing is currently underway and it looks like a long hard battle for the Future group.

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