DEV CHATTERJEE Future Group shares spike on deal hopes
Share price of Future Group companies went up on Thursday as the group firm, Future Enterprises (FEL), on Wednesday night announced that its directors would meet on Saturday to discuss possible fundraising.
The transaction may involve fund infusion by Reliance Industries (RIL) into FEL and exit of global retail giant — Amazon — as one of the promoter entity of Future Retail.
While Future Retail closed 11 per cent up at ~130 a share, FEL stock was up 5 per cent, as investors bet that RIL would be taking over the struggling retail firms of Future Group. According to a plan in the works, three Future Group companies — Future Lifestyle Fashions, Future Supply Chain Solutions, and Future Retail — will be merged into Future Enterprises. RIL will then invest around ~8,500 crore in the merged entity once the entire merger process is over.
Indian lenders, who have exposure to both listed entities and Kishore Biyani’s private holding companies, will also take a haircut in the transaction, as Future Group companies have started defaulting to loans. The lenders will also get the first charge on the real estate assets of the group, said a source.
As RIL gets set to invest in Future, the industry is keenly watching the next move of Amazon, which had invested ~1,431 crore at ~1,462.5 per share in Future Coupon, a promoter entity of Biyani, in December 2019. Amazon’s 35 per cent of the investment was made in Class A shares and the rest was made in Class B shares. The investment from Amazon helped to pay for new shares in Future Retail and pay loans in early this year.
Future Coupon held 7.3 per cent stake and 14.8 million in warrants, which when fully converted would have resulted in 9.8 per cent stake in Future Retail. Future Coupon was also issued 39.6 million warrants by Future Retail at a price of ~505 per warrant and it paid ~500 crore upfront, while the rest was due within 18 months.
Despite the Amazon cash infusion, the group companies started facing serious financial crunch on its ~13,000-crore debt at listed entities level and another ~12,000-crore loan at the promoter entities level.
“Amazon’s entry could not help the group to survive and gave an opportunity to RIL a foot in the door,” said a banker close to the deal. Amazon will be going home with a huge loss, he added.