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Amazon India, Reliance Retail and Future Group: The Story So Far

Editor, TRANSFIN.
Aug 11, 2021 12:24 PM 4 min read
Editorial

The past few days have been bittersweet for Amazon India.

On Friday, the Supreme Court handed the ecommerce giant a big win by putting the Future Group-RIL deal on hold. But yesterday, the apex court also ruled against petitions to quash the CCI's antitrust probe into Amazon's (and Flipkart's) business practices, a major setback for the company.

That said, the ruling on the ₹24,713cr ($3.4bn) Future-RIL deal is a significant one for India’s retail sector and also sets significant precedents for the legality of international commercial arbitration in the long run

Some Background

The story begins in August 2020 when Reliance Retail said it had reached an agreement with Future Group to acquire the latter’s retail, logistics and warehousing businesses, including debt.

For RIL, the purchase was an important step for its retail ambitions. The Indian retail sector is expected to balloon to $1.3trn by 2025. And Reliance - with JioMart, widespread smartphone reach and beneficial deals with Facebook and Google, among others - seemed strongly positioned to dominate the scene. The Future Retail buyout would have given RIL command over the former's vast brick-and-mortar presence (most of retail sales in India continue to be offline). And by digitising these assets and tapping into the hype over hyperlocal deliveries, Reliance was trying to best Amazon and Flipkart at their own game. Basically, Reliance Retail is trying to do to Indian retail what Jio did to Indian telecom.

For Future, the transaction was primarily about the money. It continues to reel under rising debt, which stood at ₹12,778cr ($1.8bn) as of September 2019. The infusion of $3.4bn would help the Group pare debt and strengthen its remaining businesses. Its retail USP is strong, to put it mildly. It has a physical presence in 420 cities through more than 1,800 stores across brands such as Big Bazaar, FBB, Easyday, Central, Foodhall etc. (details here).

For Amazon, the deal is likely to have set off the alarm bells at HQ. And not just because it meant hefty, fresh competition...

 

Amazonian Arguments

You see, Amazon already had a 3.5% stake in Future Retail thanks to its 49% stake in promoter Future Coupons (bought in August 2019).

The ecommerce giant contended that its agreement with the Group had given it (1) the right to a "call" option for acquiring all or part of Future Retail's shareholding within three to 10 years of the agreement and (2) the first right to refusal on purchase of more stakes in Future Retail.

 

Chandni Chowk to Singapore

The matter went to the Singapore International Arbitration Centre (SIAC), where an emergency arbitrator in October 2020 put the deal temporarily on hold until all proceedings could be completed. (The Amazon-Future deal reportedly provided for disputes to be arbitrated under SIAC rules.)

However, Future and RIL proceeded with their deal despite the SIAC decision. Both parties argued that their deal was fully enforceable under Indian law and they said they wanted to close matters “without any delay.” Groundwork for transfer of assets began to be laid and regulators were being approached seeking requisite clearance.

Naturally, Amazon was irked by these developments. It approached the Delhi High Court, where a bench upheld the SIAC’s decision. This order was however subsequently stayed by a division bench, prompting Amazon to appeal with the apex court.

 

What the Supreme Court Said

Friday's verdict saw the SC answer two main questions.

One, whether the SIAC's award was within the ambit of the Arbitration Act. The two-judge bench voted in the affirmative, noting that such orders can provide important interim relief and are an “important step in aid of decongesting the civil courts”.

Two, whether Future Retail’s appeal of the initial Delhi High Court bench verdict was maintainable. The SC voted in the negative, effectively putting its deal with Reliance on hold. 

 

What Now?

All eyes are now on the SIAC, which is expected to deliver its final verdict “later this month”.

There are two possible outcomes. First, the SIAC upholds the Future-Reliance deal. This would be a big win for RIL’s retail ambitions and see the deal proceed for regulatory clearance in India.

The other possibility is the SIAC upholding Amazon’s argument, in which case the Future-Reliance alliance would be junked. This would mean troubles for Reliance Retail’s expansionary prospects (to Amazon’s euphoria) and also Future Group being faced with the grim possibility of bankruptcy.

Enter, Future’s knight in shining armour...Amazon. The latter has said it is preparing a ₹6,000cr ($808.74m) bailout plan for Future (involving a mix of equity and debt) should the second scenario come true. Amazon has said it is ready to lend Future a funding line via the AIF route, including bringing in new investors for equity infusion to solve the latter’s liquidity squeeze.

FYI: In fact, Livemint had reported back in March that (in early 2020, before the Future-RIL deal surfaced) Amazon had assembled a group of investors (including PremjiInvest, TPG Capital, Verlinvest and SSG Capital) as part of a Future Group rescue plan.

 

Amazonian Accommodations

Should the SIAC rule against Reliance, whether Future will accept Amazon’s new proposal is not exactly set in stone. The past few months’ legal proceedings have been brutal and pretty unsavoury at times. In January, Amazon had even filed a petition asking for the detention of Kishore Biyani and his family members!

That said, Amazon can do with a good relationship with India’s second-largest retail chain. Its battle with RIL over retail supremacy is nowhere finished. And being a primarily digital platform in a market where less than 2% of retail sales are done online is a powerful handicap.

Moreover, Amazon’s regulatory troubles seem to be only beginning vis-a-vis the CCI probe. It also lost a battle with brick-and-mortar retailers recently: yesterday, it said it would end its special relationship with Cloudtail amid accusations of special treatment.

All parties are desperately in need of a favourable SIAC verdict. And this includes Amazon, Friday’s “win” notwithstanding.

FIN.
 

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