Offline retail major Future Group, which has of late come under tremendous financial strain, on Monday finally managed to avert a default by paying 1 billion rupees of interest on its foreign bonds. The interest was paid on the last date of the 30-day grace period granted by the bondholders of the $500 million senior secured notes.
The beleaguered retailer is in heavy debt and its fortunes took a turn for the worse during the nationwide Covid-19 lockdown. Future Group’s high-cost funds from private equities and falling share prices of its listed entities had triggered a crisis. The retail giant had a consolidated debt of 128 billion rupees (US$ 1.73 billion) as of September 2019, as per the company’s public records. Its flagship company Future Retail had a gross debt of 266 billion rupees ($3.59 billion) as of March 2019.
India’s richest man Mukesh Ambani has reportedly been in talks with Future Group’s promoter Kishore Biyani to buy a majority stake in the company to strengthen his offline retail reach. The funds for paying interest to the foreign bondholders were raised from banks which are negotiating a sale of Future’s business to Ambani’s Reliance Industries.
Future Group had on July 22 defaulted payment and assured that it will be able to make the coupon payment within the grace period. A missed payout would have led to a downgrade by rating agencies and other lenders, putting pressure on it to meet its repayment obligation or face invocation of pledged shares. This in turn could have also significantly impacted Future Group’s valuation for their sell-out plan to Reliance.
Reliance has been in talks to buy Future Group’s 1,700 supermarkets and lifestyle stores, including Big Bazaar and Central. The deal will help Reliance’s retail arm Reliance Retail control over nearly 40% of India’s organized retail market.
Currently Reliance Retail’s store matrix is skewed towards the consumer electronics segment, which accounts for nearly three-fourths of its overall store count but generates a fourth of its revenues. In comparison, the grocery segment, which accounts for just 7% of its store network, contributes a fifth of its sales. Hence, adding 1,300 grocery stores owned by Future Retail to its existing 800 stores will further bolster Reliance’s dominance in this segment.
However, Ambani’s ambitions could hit a roadblock as its competitor Amazon already holds a stake in Future Retail, which runs the Big Bazaar chain. In 2019, the Jeff Bezos-led American e-commerce giant had acquired a 49% stake in Future Coupons, a promoter entity which holds 2.72% in Future Retail. The deal gave Amazon an indirect stake of 1.3% in Future Retail.
In addition, Amazon has the first right to acquire Biyani’s holding in this company in three to 10 years from November 2019, when the transaction was approved by the antitrust watchdog Competition Commission of India. However, this right can only be exercised after November 2022.
Future Group has pulled out of the central sponsorship list for the Indian Premier League, a popular cricket tournament, due to its future uncertainty. This year the venue has been shifted to United Arab Emirates as India is currently battling a high caseload of coronavirus. It will be will be held between September 19 and November 10. The company’s logo has been removed from the cricket league’s website.