Why Ambani and Jindal see future in debt-laden Future Group (2024)

Once known as the "king of Indian retail" and ‘Sam Walton of India’, founder & CEO of Future Group Kishore Biyani now stands on the rubble of his business empire. Biyani, who had created one of the largest retail empires in the country spanning several formats including Big Bazaar, Central, and Easyday, became a victim of his own high ambitions. Now, Mukesh Ambani-controlled Reliance Retail and Naveen Jindal's Jindal (India) are looking to buy whatever is left of Biyani's once magnificent empire.

The downfall of Biyani's Future Group had started with the 2008 financial crisis when debt staretd pinching. He got some respite in 2012 by selling stakes in Pantloon Retail to Aditya Birla Group for nearly Rs 1,600 crore and Future Capital, his finance business, to Warburg Pincus for nearly Rs Rs 560 crore. That had still left Future Group with an estimated debt of Rs 6,000 crore. And then came a flurry of shopping when Biyani bought several brands such as Easyday, Nilgiris group and Hypercity. In 2019, Biyani again tried to pare debt by selling a 49% stake in Future Coupons for around Rs 1,500 crore to Amazon. Just when he felt comfortable, the pandmeic struck and eroded his business empire. Biyani's weakness was being over-ambitious by indiscriminately acquiring other businesses and diversifying into non-core businesses such as finance and insurance. He had also tried making films and ended up producing a few flops.

In 2020, Biyani proposed a Rs 24,700 crore sale of all of his business, 19 group companies, to Reliance Retail which was rejected by his lenders amid a legal challenge by Amazon, and his companies entered for debt resolution under the IBC.

Now, Jindal and Ambani, two big tycoons, are facing off for Future Enterprises assets. Mukesh Ambani-controlled Reliance Retail has sought time till October 30 to decide if it wants to bid for Future Enterprises, ET has reported based on information from sources..

What Future Group has got

Future Enterprises Ltd has Rs 11,000 crore of debt. It was admitted for insolvency proceedings in February by the National Company Law Tribunal in response to a petition filed by a creditor claiming the company had defaulted on payments. 19 Future Group companies including Future Retail, Future Lifestyle Fashions, Future Consumer and Future Supply Chain would merge into Future Enterprises.

Future Enterprises has retail and wholesale businesses including Big Bazaar, fbb, Foodhall, Easyday, Nilgiris, Central and Brand Factory as well as logistics and warehouse business.

In 2020, Future Group had decided to combine its nearly two dozen listed and unlisted companies and sell them on a slump sale basis to rival Reliance Retail for about Rs 25,000 crore as debt ballooned. Reliance has 1,100 supermarkets, while Future has around 1,500. The Future deal will immediately boost the retail footprint of Reliance, which has attracted marquee foreign investors in the business, Reuters had reported.

The Future Generali stake

Unlike its sister concern Future Retail, which received bids from only scrap dealers, creditors are hoping for a better outcome from the insolvency process of Future Enterprises, which owns stakes in life and general insurance joint ventures that Biyani had struck with Italy's Generali group in 2006.

Assuming Future Enterprises' insolvency process results in a better debt resolution acceptable to all creditors, the winning bidder could become the rightful owner of a 25.5% stake in Future Generali's general insurance company and receive a nearly 9% stake in Future Generali's life insurance company.

The general insurance company was valued at Rs 5,000 crore in May last year when Generali raised its stake in the company from 49% to 74%. It paid Rs 1,267 crore to purchase the additional stake to take advantage of liberalised foreign direct investment guidelines in the insurance sector.

How RIL can benefit from the deal

Reliance Industries' acquisition of Future Group's consumer business will strengthen the retail footprint of India's largest organised retailer. The retail business will be the fastest growing segment for RIL in future, Chairman Mukesh Ambani has said. RIL has invested $10 billion for the expansion of the retail business in the past two years.

The company opened more than 3,300 new stores last fiscal year, taking the total count to over 18,000 stores and that two-thirds of them were in tier-II, -III cities and smaller towns. The digital and new commerce sales contributed nearly Rs 50,000 crore last fiscal, accounting for about a fifth of the retail revenue. The business also crossed the milestone of 100 crore transactions and received more than 78 crore footfalls in FY23. It has sold stakes in its retail business to biggies.

Sovereign wealth fund Qatar Investment Authority has invested in Reliance Retail recently, taking the valuation of the business to Rs 8.28 lakh crore.

Future Enterprises with its vast retail footprint will add to the already humongous retail empire of the RIL. "The acquisition will strengthen RIL's position within the organised retail sector in India as it will be able to leverage on established brand names and vast network of stores currently owned and operated by the Future Group entities," rating agency Moody's had said.

The acquisition will also allow RIL to step-up its retail footprint in states and territories where it currently does not have a significant presence. Acquisition of Future's retail, wholesale, logistics and warehousing units may help RIL almost double its retail footprint.

"The transaction is credit positive because it will solidify RIL's position as the largest organised retailer in India and further diversify its earnings," Moody's had said last year when RIL was set to acquire the Future Group's buisness for nearly Rs 25,000 crore.

As India's economy grows and per capita incomes rise across segments, organised retail is a promising sector with a huge growth potential as penetration of organised retail is still very low. That's why Future Group with its vast organised retail footprint is an attractive asset, especially for RIL which can find synergies between the acquired and its own retail businesses.