Reliance supports the future
Reliance Industries has stepped in to save Future Retail Limited (FRL), taking over operations of its stores and offering jobs to its employees, even as the Kishore Biyani-led group is locked in a bitter legal row with major e-commerce Amazon in several court forums over the sale of its business to the retail arm of the oil-telecom conglomerate.
Reliance Retail has begun taking over operations of Future Retail stores such as Big Bazaar and replacing them with its branded stores, sources say.
Future Group is having difficulty financing its working capital requirements. In a February 26 filing, Future Retail announced plans to scale back its offline operations to cut losses in the coming months and instead focus on expanding its online and home delivery business. .
“The company is struggling to finance its working capital needs. The increase in losses at the store level is a serious concern and constitutes a vicious cycle in which larger operations lead to higher losses,” he added.
The company suffered a loss of Rs 4,445 crore in the last four quarters. Termination notices have been received for a significant number of stores due to a huge outstanding amount, and he would no longer have access to those premises.
The retailer has also informed that the long end date of its plan of arrangement with Reliance Industries has been extended until September 30.
“The company hopes that the proposed scheme of arrangement with Reliance will be implemented, which will be beneficial to all stakeholders,” he said.
In August 2020, the boards of directors of Future Retail Ltd, Future Group companies and Reliance Retail Ventures Ltd (RRVL) approved a plan of arrangement for the transfer of the retail and logistics businesses of Future Group to RRVL based on a sell-down for an aggregate consideration of Rs 24,713 crore.
At the time of the deal, Future Group was in serious financial difficulty. He had defaulted on payments to creditors and landlords for his leased premises. The amount still owed to creditors and owners exceeded a staggering Rs 6,000 crore.
At the same time, Amazon filed a lawsuit against the Future-Reliance deal. From the Supreme Court to the Delhi High Court, from the Companies Court to the Court of Appeal to a Singaporean arbitration panel, Amazon has dipped into its pockets to thwart the plan of arrangement under which the Future Group struggling was reportedly rescued by Reliance Retail.
This dealt a blow to the creditors and owners of Future Retail.
According to people close to the development, if the situation had persisted, Future Group would have suffered a severe loss of value and plunged into insolvency.
Unable to bear the burden of defaults, many landlords terminated their rental agreements with FRL in January 2021.
Sources said it was under these dire circumstances that several FRL owners, who were aware of the Scheme of Arrangement as it was in the public domain, approached Reliance for help. Upon becoming aware of the situation, sources said, Reliance took a series of steps to allow FRL to continue operations, avert the prospect of insolvency.
Reliance ensured the payment of dues to a number of landlords by signing rental agreements for their premises and, at the same time, it allowed FRL to continue its operations in these premises.
Reliance has so far incurred an outlay of over Rs 1,500 crore in paying dues, the sources say.
It also extended working capital support to FRL, sources said, with which FRL was able to pay its statutory dues, repay interest and one-time settlement amounts to banks, and continue its business operations. So far, Reliance has lent a total of Rs 3,700 crore to FRL as working capital support for the business, people familiar with the development have said.
However, despite Reliance’s support, FRL suffered losses of over Rs 4,445 crore in the calendar year 2021. Therefore, to help FRL contain its losses, Reliance exercised its rights of control and management of loss-making FRL stores, they added.
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