Article by Basma Hussain
When it comes to the fight for India’s growing e-commerce market, every battle counts and that is what the giants Amazon Inc. and Reliance Retail doing that over cash strapped retail chain – Future Retail
Amazon Inc. e-commerce firm owned by Jeff Bezos is fighting a $3.3 billion deal struck between Mukesh Ambani’s Reliance Industries and the Indian retail conglomerate Future Group.
What’s the deal here? Well access to the network of popular grocery stores and retail shops in India — something both Amazon and Reliance want either to have or to stop the other from having it.
Amazon has a 31.2% market share in India’s e-commerce industry, just behind Walmart-owned Flipkart’s 31.9%, according to a recent report from market research firm Forrester. But Reliance is all bullish to topple the market competition with JioMart, which is its entrant in the e-commerce zone.
In August 2019, Amazon invested in a Future Group entity that gave it a roughly 4.8% stake in Future Retail as of September 30 this year. The deal gave Amazon the right of first refusal to acquire more shares of Future Retails according to one of the filings.
Then Covid-19 hit and nationwide lockdown had quite an adverse impact on Future Retail’s business operations. According to The Future Group in its most recent earnings report, its credit rating took a hit after it missed a bond payment. Fitch Ratings downgraded Future Retail’s rating two notches to C, signaling that the company was “near default.”
The following month, Reliance and Future Group announced that Reliance was buying Future Retail and several other assets. The deal allowed Future Group to “achieve a holistic solution to the challenges that have been caused by Covid and the macroeconomic environment.
A grand legal dispute
The Reliance and Future retail deal was a shocker for the industry as all and sundry knew Amazon had a stake in Future Retail and the deal didn’t mention what would happen to Amazon’s stake. Amazon responded by filing a complaint to the Singapore International Arbitration Centre (SIAC).
Indian companies and foreign companies operating in India often agree to settle disputes in Singapore because “it’s a neutral jurisdiction with high integrity and international standards.
Amazon argued that the 2019 deal struck between it and the Future Group entity included a non-compete clause, which listed 30 restricted parties with which Future Retail and Future Group could not do business, and Reliance was on that list.
A SIAC emergency arbitrator gave Amazon a small victory this week when it ordered a temporary halt on Future Group’s deal with Reliance.
Future Group had argued that if the deal with Reliance falls through, its retail unit will be forced into liquidation and 29,000 people will lose their jobs. But the arbitrator ruled that “economic hardship alone is not a legal ground for disregarding legal obligations.
The battle frontward
Amazon Inc. recently again has complained to India’s market regulator that its local partner Future Retail has misled shareholders by erroneously saying that it was complying with its contractual obligations to the U.S. e-commerce giant.
The tussle has strained Amazon’s ties not just with Future Retail – one of India’s top retailers – Reliance group, which is fast expanding its e-commerce business and threatening companies like Amazon.
Amazon said Future’s news release and stock exchange disclosures violated Indian regulations, urging the regulator to investigate the matter and not approve the deal. Such disclosure is against public interest misleads public shareholders … as well as perpetuates a fraud for the benefit of the Biyanis alone.
The Future-Reliance deal can damage Amazon, as it will lose the prospect of becoming the single largest shareholder of the Indian retailer, which has an “irreplaceable and widespread network” of more than 1,500 retail stores.
In order to factor in all present and future liabilities in its arbitration tussle with global e-commerce major Amazon, Kishore Biyani’s Future Group is learned to have set aside around Rs. 1,000 crore in an escrow account as a safeguard measure.
The company’s top management is also of the view that the deal with Reliance Retail Ventures, a unit of Mukesh Ambani-owned Reliance Industries will go ahead as planned and will be completed as per schedule. The understanding within the company is that even if Future Group loses the arbitration, it would have to pay a maximum of monetary damages.
The deal had run in a conflict with Amazon, which had bought a 49 percent stake in Future Coupons, which translates to roughly 3.58 percent in Future Retail. In its objections, Amazon had said that the deal, apart from being a violation of a non-compete clause and a right-of-first-refusal pact, was also denying it the “call” option, which was part of the agreement that it had with Future Coupons.
This provision, Amazon has claimed, enabled it to exercise the option of acquiring all or part of Future Retail’s shareholding in the company, within three to 10 years of the agreement. It said the deal also required Future Group to inform Amazon before entering into any sale agreement with third parties.
Reliance Industries is now looking on for more acquisitions to strengthen its new commerce venture JioMart, part of the retail unit. In this fight where Amazon has set aside an additional $1 billion for investment in India, Flipkart raised $1.2 billion from Walmart in July. RIL acquired online pharmacy Netmeds in August and will add the pharmacy channel. Speculation had also mounted of possible acquisitions of Urban Ladder and Milkbasket in online furniture and grocery delivery spaces respectively.
Reliance operates 11,000 stores throughout India, and Amazon is the No. 2 e-commerce player in the country, Future Retail’s staggering 1,500 stores.
The industry had expected Amazon and Reliance to have some kind of deal in the future because they need each other’s knowledge. Amazon needs more shops to expand inventory and use retail spaces like storage and delivery hubs. And Reliance doesn’t have a lot of experience in e-commerce.Hopefully, it does not end up as an ego-war, but at the moment any kind of partnership between Amazon and Reliance in the future “cannot be predicted.