Almost 21 months after signing an agreement with Future Group to acquire its retail, wholesale, logistics and warehousing assets, Reliance Industries Ltd said the transaction cannot go ahead as secured creditors of the latter have voted against it. 

In a filing with the stock exchanges, RIL said, “The Future Group companies comprising Future Retail Limited (FRL) and other listed companies involved in the scheme have intimated the results of the voting on the scheme of arrangement by their shareholders and creditors at their respective meetings. 

“As per these results, the shareholders and unsecured creditors of FRL have voted in favour of the scheme. But the secured creditors of FRL have voted against the scheme. In view thereof, the subject scheme of arrangement cannot be implemented.” The scheme of arrangement was for the transfer of retail and wholesale business and the logistics and warehousing business of Future Group to Reliance Retail Ventures Limited (RRVL), a subsidiary of the company, and Reliance Retail and Fashion Lifestyle Limited (RRFLL), a wholly-owned subsidiary of RRVL, for Rs 24,371 crore. 

The deal was opposed by Amazon and intense legal battles have been waged ever since the deal was announced.

However, the lenders are now in the midst of dragging Future Retail to the insolvency court as the debt-strapped company owned by Kishore Biyani owes over Rs 16,000 crore to the lenders. 

RELIANCE: THE BIG WINNER 

Despite calling off the deal with Future Retail, Reliance Industries still walks away with 947 small and large format store premium that was once occupied by Future Retail stores. 

“The owners of the stores terminated the lease with Future Retail since they could not pay the rent and leased the same stores to us. This is separate from the earlier announced merger deal with Future,” according to the sources. 

Future Retail has defaulted in payment of dues to the owners of the leased premises and many had initiated termination of the lease agreements for repossession of the premises. Reliance stepped in to take over the lease and then further sub-lease all these premises back to FRL so that its business could continue.

Reliance had taken over 342 large format stores, such as Big Bazaar, Fashion, Big Bazaar (fbb), and 493 small format stores such as Easyday and Heritage stores). However, lenders to Future Retail had objected to the transfer of these stores and had asked the company to take them back. Following this, Future Retail had written a letter to Reliance Industries asking it to return the assets and inventory from the 900 stores.

WHAT WENT WRONG? 

In August 2020, Future Retail struck a deal with Reliance Industries to sell its retail, wholesale, and logistics business for Rs 24,713 crore. Hit hard by the COVID-19 pandemic and unable to pay rents, the deal with Reliance Retail was crucial for Future Group. 

The Future–Reliance deal was opposed by US e-commerce giant Amazon, which managed to get a stay from a Singapore arbitration tribunal soon after. Amazon had acquired a 49 percent stake in promoter group company Future Coupons in 2019, and it argued that under that agreement Future Retail couldn’t sell its assets to certain entities, including Reliance. 

Future Retail and Amazon have fought a legal battle in Singapore, Delhi High Court, and the Supreme Court. Recently, after settlement talks between the two sides failed, the Supreme Court had last month ordered the two sides to resume arbitration proceedings in Singapore. 

Even as the two sides fought in court, in February, Reliance Retail suddenly took over 100s of Future Retail stores, including the Big Bazaar supermarkets. It emerged that with Future unable to pay rents, landlords had canceled the lease agreements with Future Retail and in turn transferred it to Reliance. It had allowed Future to continue running the stores until it started taking them over in February due to non-payment of sub-leases. 

Future Retail said 947 stores, which contributed to 55-60 percent of its retail revenue had been taken over by Reliance. That left lenders red-faced, who issued advertisements in leading newspapers warning people against dealing with Future Retail assets, as the banks had the first charge over them. 

Against this backdrop, they were also apparently not convinced about how their debt repayments would be addressed. So, earlier this week, even as shareholders, as well as unsecured creditors, approved the Future-Reliance deal in separate meetings held in compliance with directions from the National Company Law Tribunal, the secured creditors rejected the deal. 

As per disclosures from Future Retail, 85.94 percent of the shareholders approved the deal. Unsecured creditors too supported the deal, with 78.22 percent voting in favor. But, secured creditors rejected the deal, with 69.29 percent voting against it.

That essentially sealed the fate of the deal. Bank of India, which is the lead banker in the consortium of lenders to Future Retail, has already initiated insolvency proceedings against the company following the default. With the deal with Reliance Retail now off the table, the possibility of insolvency proceedings now looms large for Future Retail, with banks now expected to seek a resolution plan under the Insolvency and Bankruptcy Code.

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