How wrong choices led to the dismantling of Future Group’s retail empire

Indian billionaire Mukesh Ambani has settled the dispute over who gets to own the assets of beleaguered Future Retail not in an arbitration tribunal in Singapore, or in a courtroom in New Delhi, but in a shopping aisle.

Future Retail had been subleasing store space from the tycoon’s Reliance Industries and was kept operating only on Ambani’s forbearance because Future couldn’t come up with the rent. But with Amazon.com continuing to block Reliance’s $3.4 billion purchase of Future’s assets, Ambani decided to make the acquisition a fait accompli — he terminated the leases and is taking control of the properties.

The first rescue

It was a dramatic denouement to a three-year-old saga. Amazon was Future’s original rescuer, investing $192 million into a gift voucher unit controlled by its founder Kishore Biyani. India’s foreign direct investment rules prevented Amazon from rescuing debt-laden Future Retail directly; it instead funded privately held Coupons so that Biyani could use the money to steady the debt-laden Indian retailer and thus, indirectly exercised some control over Retail.

The condition of that 2019 deal was that assets — about 1,500 stores nationwide — wouldn’t be sold to Ambani, who owns India’s largest retail empire; but that control proved to be tenuous. Biyani sold the assets after Covid-19 decimated operations, and Amazon began proceedings against Future for breach of contract.

Future’s independent directors complained to India’s trustbuster that the multinational firm had deliberately misled the authority about the true nature of the Coupons deal, which effectively put Amazon in the driver’s seat at Retail, violating India’s 2018 foreign direct investment law. The regulator promptly suspended its earlier approval of Amazon’s investment and the Delhi High Court halted the Singapore arbitration panel’s work.

Amazon had given Future — a the near-bankrupt firm with a net worth of negative $280 million — an option as late as January for a further $914 million bailout, but Future’s independent directors judged the offer to be inadequate given the ballooning debt.

Swift takeover

But Future’s preferred saviour moved in quicker than expected — according to a March 9 disclosure by Future Retail, 342 of its large stores and 493 of smaller outlets, constituting 55 per cent to 65 per cent of retail revenue, have so far received termination notices of sub-leases from Reliance entities. 

Desperation was palpable in the messages Future sent Reliance.

“Please confirm that there will not be any reduction in consideration payable,” says a March 2 message from Future. Then, one paragraph later, “It is important for our stakeholders to have visibility on the final consideration.”

“Your insistence of removing all such assets (inventory, furniture, lighting and point-of-sale equipment) from the stores may not be practically possible and such removal may result in irreversible losses in terms of value,” says a March 5 letter to Reliance, this time by Future Lifestyle Fashions Ltd. “We would request your goodselves not to take any actions with respect to the assets as well as premises till we can discuss ….” 

Court cases drag on

However, Amazon hasn’t given up on the fight, or a market of 1.4 billion consumers. The Seattle-based firm alleged in a March 15 newspaper ad that Future was trying to remove the “substratum of the dispute” by transferring its stores to Ambani in a “clandestine manner”.

It also informed the Supreme Court that out-of-court truce talks had failed. And so, it returns to the same Indian justice system that supplanted the country’s arbitration law before it could settle a simple commercial dispute. The e-commerce giant has found that when faced with muscular opponents, the odds of enforcing a contract in the country are slim. 

As for Future, it doesn’t have much of one. The manner in which an Indian pioneer of modern retail got taken apart store by store because of the wrong choices it made should be a case study. However, before academics get busy, creditors need to find out where the shopping racks and the cash machines are kept. It’s their collateral, after all, and the overarching lesson of this contest has been that everyone should grab what they can. While stocks last. 

Author credit: Bloomberg Opinion columnist Andy Mukherjee

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