Amazon offers help, future not affected

Amazon was responding to a petition for emergency funding by independent directors of Future Retail Ltd. 3,500 crore till Monday.

In a January 22 letter, the US e-commerce giant said it is looking forward to the June 30, 2020 term sheet signed between Samara Capital, Future Retail and promoters of the Indian retailer to acquire all retail assets of Future Retail. which includes the “Easy Day”, “Aadhaar” and “Legacy” brands through an Indian owned and controlled entity structure led by Samara and backed by Amazon 7,000 crores.

Amazon and domestic investment firm Samara Capital have jointly invested in other Indian retail properties, including supermarket chain Peacock, from the Aditya Birla Group in 2018. India limits foreign investment in multi-brand retailers to 51%, but investment is subject to the government. Approval.

The Future Group has been fighting a bitter legal battle with Amazon for nearly 18 months in various courts in India and Singapore over a deal with Reliance Industries. The group owes about $2.5 billion to about 20 creditors.

According to a person close to developments, FRL’s independent directors are preparing a response to Amazon’s letter, reiterating their question about whether Amazon was authorized to negotiate on behalf of Samara Capital and whether the latter was followed by resident Indians. The entity was owned and controlled by “He has reiterated an offer that was rejected by the management of FRL two years ago. Since then, the company’s problems have only increased. We have sought a proposal that meets the needs of lenders, employees, vendors and other stakeholders, and what they have done is to come back with the same offer. We asked for clarity on the situation in Samara. There is no reaction to that either,” said the person.

If the FRL fails to pay its loans by January 29, it faces the possibility of being dragged to bankruptcy court. “We face the prospect of bankruptcy and liquidation, and we need to make sure we are speaking to a party with serious intent to help resolve the situation,” the person said.

After Future Retail missed its December 31 repayment deadline for borrowing 3,495 crore, the company now has time till January 29 to pay the lenders, failing which it will be classified as non-performing. This is because the loans of Future Retail were restructured vide Reserve Bank of India (RBI) circular dated 6 August 2020, which allows a 30-day review period from the date of default for the restructured loans. If the company is unable to make the payment by January 29, banks will have to set aside more provisions than usual as it will be assumed that the account was never restructured and became NPA on the date of implementation of the resolution plan. In that case, provisions would have to be made as if the restructuring never took place, forcing banks to classify the account as “doubtful”, with the latter requiring at least 25% provisions. Under RBI’s rules, banks must classify NPAs into three buckets – substandard, doubtful and loss assets – based on the default period. Since bad loans remain in the books of the bank for a longer period, the chances of their recovery also get reduced.

“We note that significant time has been lost due to the reluctance of FRL (Future Retail) and independent directors to consider potential solutions facilitated by Amazon in the past. Nevertheless, we remain within the framework of our rights under the agreements. We confirm our offer to assist FRL within,” Amazon said in the letter.

In the letter, Amazon said its move to help will not affect the pending legal matters between Amazon and Future Group. “Our engagement shall not, in any way, affect the binding nature of injunctions passed in arbitration proceedings and by Indian courts (“binding injunctions”) with respect to alienation/transfer/encumbrance/disposal of retail properties of FRL and Such engagement shall be in accordance with our rights under the agreements,” the letter said.

In the letter, Amazon said the proposed Samara-Future deal would be structured similar to the proposed acquisition of the retail and wholesale venture of Future Group (which includes FRL’s retail assets) by Reliance Retail and Fashion Lifestyle Ltd.

“We understand that the business operations of this entity are negligible and the parent entity of which Reliance Retail Ventures Limited has acquired at least one” 47,265 crore from various foreign investors. We also understand that this amount is proposed to be used for acquisition of retail, wholesale and logistics assets of FRL.”

Amazon also asked Future Retail’s independent directors to immediately implement provisions set out in the Samara term sheet, including providing Samara an opportunity for Future Retail’s due diligence. “If access may be granted in respect of all financial, tax, regulatory, operational, licence, assets, encumbrances, material contracts, material liabilities, material litigation, material investigations and similar data, which MDA (Mukesh Dhirubhai Group) Samara is ready to start the Due Diligence exercise from Sunday, 23 January and complete it expeditiously.”

“In view of your (FRL independent directors’) request that we (Amazon) assist on an urgent basis, to further expedite the process, it would help if all current due diligence reports prepared by or on behalf of FRL, were reported on Sunday. , has been made available to Samara by January 23,” Amazon said, urging FRL to engage in discussions with Samara on the proposed deal, in order to meet binding commitments within the shortest possible time.

In letter, Amazon asks FRL to consider recovery of up to 4,303 crore by winding up transactions relating to outstanding advances and security deposits as per the audited financial statements of FRL.

Samara and Amazon are confident that the transactions considered in the Samara Term Sheet can be implemented faster if the Independent Directors and FRLs provide immediate access to FRL information and records and cooperate fully in the engagement/discussion. could. Furthermore, with Samara, we are ready to engage with other stakeholders to find a viable solution at hand.”