Amazon failed to provide any help when group debt mounted amid lockdown: Future promoters

Amazon provided mere “lip service” and failed to provide any help to the debt-laden Future Group as the retail major suffered massive setback amid the COVID-induced lockdown and faced possible insolvency or debt restructuring, Future Group’s promoters said in a letter to the e-commerce giant. This is the first time Future Group promoters have written to Amazon after the parties were embroiled in a legal battle over the sale of Future’s retail assets to Reliance Industries. The letter from the promoters, including Kishore Biyani, was written on December 31. It alleged that Amazon’s actions “lacked good faith” during the March to August period, when the group’s retail business was severely hit by the lockdown.

Future also contended that Amazon was “at all times fully aware of the exclusivity period with Reliance of 4 weeks from 2nd July,2020 and its extension upto 14th August, but as party to FCPL SHA (shareholding agreement) made no concrete plan or proposal”. “Except for offering lip service and perfunctorily attempting to show your concern, there were no serious or genuine efforts made by you. “The correspondence during this period bears out that you really had no intention to assist the Promoters/FCPL (Future Coupons) in preventing the alienation or disposal of the FRL (Future Retail Limited) shares,” the letter said. It further alleged that Amazon merely put up a “facade of ‘facilitating’ the raising of finance by the Promoters”. When contacted, an Amazon spokesperson said, “It is incorrect to say that Amazon did not offer help to Future Retail Limited as there were ongoing discussions on multiple options with partners on the one hand and with the promoters of Future on the other including a signed Term Sheet.” Amazon had dragged Future to arbitration at the Singapore International Arbitration Centre (SIAC) after the indebted Kishore Biyani group firm signed a pact to sell retail, wholesale, logistics and warehousing units to billionaire Mukesh Ambani’s Reliance Industries in August last year.

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A company that is unable to discharge its debt may have to undergo restructuring or face insolvency resolution process, where the management not only loses all control but the promoter equity holding is also at the risk of being wiped out. Banks and other lenders had started to exert tremendous pressure to restructure the businesses at Future that was facing mounting debt to the tune of Rs 11,250 crore as of June 30, 2020. Despite all financial difficulties, Future Group ensured that Amazon’s investments of FCPL continue to remain “encumbrance free”, it added. In 2019, Amazon had agreed to purchase 49 per cent of one of Future’s unlisted firms — FCPL — with the right to buy into flagship FRL after a period of three to ten years. FCPL holds 7.3 per cent equity in BSE-listed Future Retail Ltd — that operates popular supermarket and hypermarket chains such as Big Bazaar — through convertible warrants. The promoters alleged that Amazon had failed to nominate any replacement financial institutions (RFIs) and in failure to exercise this right “when the circumstances warranted the same, contributed to the loss of control over the Promoters’ FRL Securities”. “In such dire circumstances, you were not expected to sit on the fence by simply calling for information and data and doing nothing to prevent the alienation and disposal of the Promoter FRL Securities. The least you could have done, was to nominate RFIs as soon as possible, or within reasonable time,” the letter said. It added that by not nominating any RFIs, Amazon contributed to the deterioration of the asset value of promoters’ FRL securities. Future noted that the promoters had notified Amazon of the occurrence of ‘Event(s) of Default’ under the existing loan documents and that the first such communication was addressed on March 16, 2020.

Future said it had put forth various alternative proposals for Amazon’s consideration, including a proposal to increase Amazon’s effective shareholding in FRL from 4.8 per cent to 19.1 per cent by investing an additional Rs 1,470 crore. Future claimed that it also had made attempts to negotiate with other financial institutions and/or funds (for example Samara) to prevent alienation or disposal of promoters’ FRL securities. “… we could not go ahead with Samara because they wanted your (Amazon) NOC which was not forthcoming…we also explored the possibility of forming a consortium of financial institutions including other investors (eg Premji), who wanted your participation, which you did not consent to, using FDI laws as the reason…,” it said. Future, in its 12-page letter, also sought to address Amazon’s contention that the latter’s consent was required for going ahead with the composite scheme of arrangement. “(This) assumes significance only if we could mutually save the Promoter FRL Securities from alienation and/or disposal. This never happened, despite our best efforts. “Accordingly, the consent was appropriately granted by FCPL on August 29, 2020. For the reasons mentioned above this consent which was granted does not amount to any breach as alleged by you or otherwise,” it said. The promoters said they were “fed up” with Amazon’s “lackadaisical” attitude and were left with no option but to accept the offer from Reliance as it was under pressure from lenders and bankers. “You, alone, are responsible for contributing to this situation, having failed to bail out FCPL and/or the Promoters from preventing alienation or disposal of the Promoter FRL Securities,” it said.