Reliance Industries has stepped in to rescue Future Retail Limited (FRL), taking over the operations of its stores and offering jobs to its employees, even as the Kishore Biyani-led group is locked in a bitter legal wrangle with e-commerce major Amazon at several judicial forums over the sale of its business to the retail arm of the oil-to-telecom conglomerate.
Reliance Retail has started taking over operations of Future Retail stores such as Big Bazaar and replaced them with its brand stores, according to sources.
Future Group has been finding it difficult to finance its working capital needs. In a stock exchange filing on February 26, Future Retail said it plans to scale down its offline operations to reduce its losses in the coming months and instead focus on expanding its online and home delivery business.
“The company has been finding it difficult to finance the working capital needs. Increasing losses at store level is a grave concern and is a vicious cycle where larger operations are leading to higher losses,” it added.
The company has made 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 huge outstanding, and it would no longer have access to such store premises.
The retail major also informed that the long stop date for its scheme of arrangement with Reliance Industries has been extended to September 30.
“The company is hopeful that the scheme of arrangement proposed with Reliance will be implemented which will be beneficial for all the stakeholders,” it said.
In August 2020, the boards of Future Retail Ltd, Future Group companies, and Reliance Retail Ventures Ltd (RRVL) approved a Scheme of Arrangement for the transfer of Future Group’s retail and logistics business to RRVL on a slump sale basis for an aggregate consideration of Rs 24,713 crore.
At the time of the agreement, Future Group was in acute financial trouble. It had defaulted on payments to creditors and landlords for its leased premises. The amount outstanding to the creditors and the landlords exceeded a staggering Rs 6,000 crore.
At the same time, Amazon initiated a litigation against the Future-Reliance deal. From the Supreme Court to the Delhi high court, from company law tribunal to the appellate tribunal and a Singapore arbitration panel, Amazon has dug into its deep pockets to stymie the scheme of arrangement under which the troubled Future group would have been rescued by Reliance Retail.
This dealt a blow to the creditors and the landlords for Future Retail.
According to people close to the development, had the situation persisted, Future Group would have suffered a severe loss in value and plunged into insolvency.
Unable to bear the burden of defaults, many landlords terminated their lease agreements with FRL by January 2021.
Sources said it was in these dire circumstances that several landlords of FRL, who knew about the Scheme of Arrangement as it was in public domain, approached Reliance for support. Taking cognisance of the situation, sources said, Reliance took a slew of measures to enable FRL to continue its operations, avoid the prospects of insolvency.
Reliance ensured payment of dues to a number of landlords by signing lease agreements for their premises and at the same time, it enabled FRL to continue its operations at these premises.
Reliance has so far incurred an expense of over Rs 1,500 crore towards payment of dues, as per sources.
It also extended working capital support to FRL, according to sources, with which FRL has been able to pay its statutory dues, repay interests 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 to the company, said people close to the development.
However, in spite of Reliance’s support, FRL incurred losses of over Rs 4,445 crore during the calendar year 2021. Therefore, to help FRL contain its losses, Reliance has exercised its rights to control and manage FRL’s loss-making stores, they added.