Future Retail accuses Amazon of attempting to block its OTR scheme, asks US giant to repay dues to lenders

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The independent directors of Future Retail Limited (FRL) have responded to Amazon’s letter dated January 19 and asked the e-commerce giant to pay Rs 3,500 crore to FRL so that it can repay its lenders.

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Future Retail’s terse response came after Amazon said it has learnt about FRL’s plans to sell its small-format stores comprising the ‘Easyday’ and ‘Heritage Fresh’ brands and warned that such a move without seeking its consent would be in violation of injunctions. Amazon had also reiterated its willingness to assist the cash-strapped retailer in addressing its financial concerns.

The US-based company had in its recent letter to FRL said: “Amazon reiterates that FRL is bound by valid and subsisting injunctions issued by the Arbitral Tribunal, and enforced by Indian Courts. Amongst others, FRL is prohibited from directly or indirectly taking any steps to transfer/dispose/alienate/encumber FRL’s Retail Assets without Amazon’s consent.”

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Reacting to this, the independent directors of FRL pointed out that Future Retail needs urgent cash infusion to repay Rs 3,500 crore to its lenders by January 29, 2022, failing which it will be classified as an NPA.

They added: “Since you are objecting to the sale of small-format sales, the proceeds of which were to be used to repay lenders and thereby avoid NPA classification, please confirm that you are willing to fund this amount by Monday (January 24) through an unsecured, long-term loan, subordinated to FRL’s existing lenders or any other mutually suitable and legally acceptable structure.  If you do so, FRL will use such funds in order to repay FRL’s existing lenders. Alternatively, you are also free to engage with the Lenders, so that we do not fall foul of our OTR process or obligations.”

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They also pointed out that the scheme has received support from the lenders of FRL and it is only on account of the Scheme that FRL has been able to enter into a one-time restructuring (OTR) with its lenders and restructure its debt. This OTR has been entered into under the aegis of RBI Circulars, and pursuant to this OTR, FRL is required to sell its small-store format business (i.e. the business under the brands ‘Easyday’ and ‘Heritage Fresh’), by December 31, 2021, and use the proceeds to repay lenders.

Accusing Amazon of trying to stop the sales, FRL said: “While a 30-day grace period has been provided which expires on January 29, 2022, it is unfortunate that you are again attempting to stop such a sale and prevent the lenders from realising their dues. Your actions have resulted in driving FRL to the ground at enormous cost to the entire ecosystem of its creditors, lenders, vendors, employees and shareholders.”

The directors then went on to speak about Amazon’s reference to a potential transaction between Samara Capital and FRL, as a “solution”. They said: “In this regard, you are requested to confirm if Amazon can act on behalf of Samara Capital and has the authority to negotiate and finalise such transaction on its behalf.”

FRL added: “Please also confirm the structure for the proposed transaction, and that the manager of Samara Capital is owned and controlled by resident Indians.  As you know, FRL is in the multi-brand retail sector, and FDI in this sector is restricted.  You are also aware that Amazon’s transaction in Future Coupons, has resulted in regulatory scrutiny, including by the Competition Commission of India, as well as enquiries by the Enforcement Directorate. It is therefore critical that any investment being proposed is in compliance with all applicable laws, including FDI laws, CCI regulations and SEBI regulations, and that any such transaction should not raise further regulatory scrutiny.”

Ravindra Dhariwal, Independent Director of Future Retail Limited, also sought clarity on how FRL would actually service its dues and repay lenders since its liabilities to its lenders aggregates to Rs 9119.31 crore for interest and principal repayments to lenders up to March 2022 (including immediate payment of an overdue amount of Rs. 3,494.56 crore) and Rs 2,908 crore for operations up to March 2022 and the proposed infusion referred to in Your Letter is significantly below that.

Dhariwal has asked Amazon to provide confirmations on the same by January 22.

Notably, Future and Amazon have been locked in a bitter legal tussle after the US e-commerce giant dragged Future Group to arbitration at the Singapore International Arbitration Centre (SIAC) in October 2020, arguing that FRL had violated their contract by entering into a deal for the sale of its assets to billionaire Mukesh Ambani’s Reliance Retail on a slump sale basis for Rs 24,713 crore.

Disclaimer: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

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