A loan of around ₹2,000 crore taken by Future Group founder Kishore Biyani in his personal capacity is acting as a hurdle for a proposed transaction to sell the group’s retail and lifestyle business to Reliance Industries Ltd (RIL), said two people aware of the discussions between the two parties.
A final decision on resolving the personal debt issue and finalizing the ₹23,000 crore all-cash deal may be taken in 10 days, both the people said, requesting anonymity.
“The deal was supposed to be announced on 30 July, but negotiations got stuck on ways to tackle one large chunk of personal debt taken by Biyani as a promoter in Future Corporate Resources,” the first person said.
Mint reported on 28 July that RIL is close to buying Future Group’s retail assets to bolster its position in India’s retail sector.
The proposed transaction will see five listed entities, including Future Retail Ltd, Future Consumer, Future Lifestyle Fashions, Future Supply Chain and Future Market Networks, merge into Future Enterprises Ltd (FEL) before the sale of the assets, both the people said.
FEL will then conduct a slump sale of its retail assets as well as liabilities to one of the retail subsidiaries of RIL.
FEL develops, owns and leases retail infrastructure for Future Group, according to the company’s website. It also holds the group’s investments in subsidiaries and joint ventures, including insurance, textile manufacturing, supply chain and logistics.
As of 30 September 2019, the combined debt of Future Group’s listed companies increased to ₹12,778 crore from ₹10,951 crore as on 31 March 2019.
Biyani’s 46% stake in Future Lifestyle is entirely pledged, and in Future Retail too, three-fourths of his 42% stake is pledged.
As per the deal, fashion and grocery retail formats from Future Group’s listed entities such as Big Bazaar, FoodHall, Nilgiris, FBB, Central, Heritage Foods and Brand Factory, barring apparel brands Lee Cooper and All, will be acquired by RIL. In all, more than 1,700 stores across formats will be taken over by RIL.
Mukesh Ambani-controlled RIL will also absorb partnerships that the Future Group has with foreign brands and retailers. For instance, Future Retail has a master franchise pact with 7-Eleven Inc. to start 7-Eleven convenience stores in India. However, not a single store has been opened so far.
In July, rating agency Fitch downgraded Future Retail’s long-term issuer default rating to C after a missed payment of semi-annual interest on bonds. Two Future Group units have also missed their payments to Franklin Templeton funds, which are winding up.
RIL is also likely to acquire a 15% stake in Future Consumer.
Starting his innings from the late 1980s, Biyani built a sizable organized retail business. In 1991, he changed the name of his company to Pantaloon Fashion (India) Ltd. In 2001, the first Big Bazaar store opened in India.
Reliance Retail, on the other hand, operates close to 11,784 stores across categories such as value fashion, footwear, premium fashion, grocery, jewellery, electronics and connectivity.
In FY20, Reliance Retail achieved a turnover of ₹1.63 trillion.
Reliance Retail also works as the master distributor for Jio connectivity service.
RIL’s move to consolidate the physical store business forms part of its strategy to enhance focus on its e-commerce initiative JioMart, where it has entered into a commercial agreement with messaging app WhatsApp, which is owned by Facebook, to reach more consumers.
Last week, RIL said JioMart has reached a peak of 400,000 orders a day, and claimed to have become the largest online grocer in the country.
