Samara Capital ready to invest Rs 7K crore in Future Retail: Amazon

US e-commerce giant Amazon has again written to independent directors of Future Retail (FRL), including Gagan Singh, Ravindra Dhariwal, and Jacob Mathew, expressing its willingness and ability to help FRL address its financial concerns. This included the solution proposed in the term sheet between Amazon-backed private equity firm Samara Capital and FRL, in which the former contemplated an infusion of Rs 7,000 crore in the Kishore Biyani firm. 

Amazon has reached out to FRL in response to the retailer's letter in which the company said that it is willing to accept Amazon’s proposal but under certain conditions, and assessment of the proposal will be subject to FRL’s legal obligations.

Amazon has also sent the letter to top officials, including Ajay Tyagi, chairman, Securities and Exchange Board of India (SEBI), Ashok Gupta, chairman, Competition Commission of India (CCI), Sanjay Kumar Mishra, director, Enforcement Directorate, and G Mahalingam, whole-time member, Sebi. It has also been sent to top executives at Union Bank of India, Bank of India, State Bank of India, Bank of Baroda, Central Bank of India, Punjab National Bank, UCO Bank, and Indian Bank.

“We are pleased that for the first time since our letter dated December 2, 2020, the independent directors are willing to consider Amazon’s assistance in addressing the financial concerns of FRL,” said Amazon’s letter to FRL’s independent directors (dated January 22) which Business Standard has reviewed.

“We note that significant time has been lost on account of the unwillingness of FRL and the independent directors to consider potential solutions facilitated by Amazon in the past. Nevertheless, we reaffirm our offer to assist FRL within the framework of our rights under the agreements.”

In this regard, Amazon confirmed that based on FRL’s letter dated January 21, Samara Capital (Samara) has reiterated to Amazon that it remains committed to lead and take forward the term sheet dated June 30, 2020, signed among Samara, FRL and the promoters of FRL, which contemplates a purchase consideration of Rs 7,000 crore with the assistance and cooperation of the independent directors.

“Pertinently, the Samara Term Sheet provides for an acquisition of all retail assets of FRL, including the “small store formats” comprising the ‘Easy Day’, ‘Adhaar’ and ‘Heritage’ brands, through an Indian owned and controlled entity structure led by Samara and supported by Amazon,” said Amazon’s letter.

Queries to Amazon and Future Group remained unanswered until the time of going to press.

Amazon, further in the letter, said its engagement shall, in no manner, affect the binding nature of the injunctions passed in the arbitration proceedings and by Indian courts, including in relation to the alienation/ transfer/ encumbrance/ disposal of FRL’s retail assets. Such engagement will be consistent with Amazon’s rights under the agreements.

“The transaction (‘impugned transaction’) with the Mukesh Dhirubhai Ambani (Reliance Industries Limited) group (MDA Group) will not proceed and not be acted upon,” said Amazon in the letter. “All assistance would be done through legally compliant structures.”

According to sources, as early as June 2020, the Amazon-backed private equity firm had signed a non-binding term sheet with FRL that entailed a Rs 7,000 crore investment. This was two months before Kishore Biyani-led Future Group announced its Rs 24,713 crore (or $3.4 billion) merger deal with Mukesh Ambani-led Reliance Industries (RIL) at the end of August 2020.

Amazon has told FRL that the transaction envisaged in the Samara term sheet would ensure the availability of funds in FRL at the earliest, through an asset sale and an equity infusion, which would be a direct antidote to FRL’s indebtedness.

As regards compliance of any structure with Indian law, Amazon said this structure is also similar to the proposed acquisition of the retail and wholesale undertaking of Future Group (which includes FRL’s retail assets) by Reliance Retail and Fashion Lifestyle Limited. 

“We understand that this entity has negligible business operations and whose parent entity Reliance Retail Ventures Limited has received at least Rs 47,265 crore from various foreign investors,” said the letter. “We also understand that this amount is proposed to be utilised to fund the acquisition of FRL’s retail, wholesale and logistics assets.”

In fact, the transaction involving FRL and “constituents of the MDA Group, viz, Reliance Retail Ventures Limited and Reliance Retail and Lifestyle Fashions Limited, follow a strikingly similar structure. A comparison between the transaction structure under which Amazon made its investment and the structure involving Reliance Retail Ventures Limited and Reliance Retail and Lifestyle Fashions Limited is set out at Schedule I of the letter.”

Amazon said it looks forward to independent directors implementing the provisions set out in the Samara Term Sheet immediately, including by providing Samara with the opportunity to conduct due diligence of FRL. If access can be provided in relation to all financial, tax, regulatory, operational, licenses, assets, encumbrances, material contracts, material liabilities, material litigations, material investigations and similar data which was shared with the MDA Group, Samara is ready to commence the due diligence exercise from Sunday, January 23, 2022, and complete it in an expedited manner.

“Given your request that we assist on an urgent basis, in order to expedite the process further, it will help if all the existing due diligence report(s) prepared by or on behalf of FRL, are made available to Samara by Sunday, January 23, 2022,” said Amazon.

As in the past, Amazon said it remained available to facilitate discussions with Sumeet Narang, managing director at Samara. Further, as indicated vide its letter dated January 19, 2022, Amazon will facilitate the meeting with Narang on Sunday, January 23.

“Please let us know the name and contact details of the authorised representative of FRL, who will attend the meeting and lead the engagement on behalf of FRL with Samara such that binding commitments can be arrived at within the shortest possible time,” said Amazon.

“We also trust that you will cooperate in obtaining any regulatory approvals as may be needed,” it further said. 

FRL had set conditions to accept Amazon's proposal in a letter sent to the US e-commerce firm dated January 21. It said FRL is required to pay its lenders Rs 3,500 crore by January 29 and asked Amazon for its willingness to pay the amount by Monday, January 24. It asked if Amazon has the authority to act on behalf of Samara Capital to finalise the transaction on its behalf. It said the management of Samara Capital should be owned and controlled by resident Indians to avoid any regulatory scrutiny. Amazon needed to confirm by January 22 to accept the conditions including funding. FRL wanted written confirmation by Amazon about how FRL can service its dues and repay its lenders the total amount of about Rs 9,119.31 crore by March 2022. It told Amazon that its proposed infusion (of Rs 7,000 crore) for FRL in the letter is significantly less. FRL alleged that Amazon is making attempts to block Future to monetise its assets and repay lenders.

Amazon’s letter noted that the MDA Group was allowed to conduct due diligence in preparation for its transaction from April 23, 2020, although the impugned transaction was finally entered into on August 29, 2020. Amazon said while it understands that the impugned transaction did not result in any immediate infusion of funds into FRL, it may be noted that if the Samara term sheet were implemented and the transactions as contemplated therein were consummated, FRL would have received up to Rs 7,000 crore as contemplated in the Samara term sheet in the middle of September 2020 itself (i.e., within 2 months of executing the Samara term sheet), thereby obviating any imminent financial crisis or funding requirement purportedly faced by FRL.

“We reiterate that FRL’s retail assets cannot be alienated/ transferred/  encumbered/disposed of in any manner without Amazon’s consent,” said Amazon. “Pertinently, the circular issued by the Reserve Bank of India dated August 6, 2020, does not mandate or require any sale of any assets of FRL.”

Amazon has also requested FRL to consider to recover/generate up to Rs 4,303 crore by unwinding the transactions relating to outstanding advances and security deposits as per the audited financial statements of FRL.

Response by Amazon’s new letter dated January 22, 2022 to the conditions set by FRL:

• Amazon’s willingness to offer financial assistance to FRL including proposed infusion of Rs 7,000 crore led by an Indian-owned and controlled entity structure led by Samara.

• The transaction envisaged in the Samara Term Sheet would ensure availability of funds in FRL at the earliest.

• For compliance with Indian law, Amazon’s proposal is similar to the proposed acquisition of Future’s assets by Reliance Retail and Fashion Lifestyle Limited.

• Samara is ready to commence the due diligence exercise from Sunday, January 23, 2022. It will help if all the existing due diligence report(s) prepared by or on behalf of FRL, are made available to Samara.

• Available to facilitate discussions with Sumeet Narang, Managing Director at Samara,on Sunday, January 23, 2022.

• The letter noted that the MDA Group (Mukesh Dhirubhai Ambani) was allowed to conduct due diligence in preparation for its transaction from April 23, 2020, although the Impugned Transaction was finally entered into on August 29, 2020.

• Amazon is of the view that if the Samara Term Sheet implemented, FRL would have received up to Rs 7000, crore in the middle of September 2020 itself within 2 months of executing the Samara Term Sheet), thereby obviating any imminent financial crisis faced by  FRL.

• The letter reiterated that FRL’s retail assets cannot be alienated/transferred/encumbered/disposed of in any manner without Amazon’s consent. Otherwise, any proposal given by FRL to do so would invite appropriate consequences under law.