(Bloomberg) — Reliance Industries Ltd. is buying assets of debt-strapped rival Future Group for 247.1 billion rupees ($3.4 billion), almost doubling the footprint of India’s No. 1 retailer and largest company by market value. Future Retail Ltd. bonds gained and its shares soared 20% in Mumbai trading Monday.
The deal includes Future’s retail, wholesale, logistics and warehousing units, Reliance Retail Ventures Ltd. said Aug. 29 in a statement. Dollar notes sold by Future Retail rose 20 cents to 93.5 cents on the dollar Monday, the biggest jump since the bond’s sale in January, according to Bloomberg-compiled prices. The unit averted a default on the securities this month.
The telecommunications, retail, oil and petrochemicals conglomerate led by billionaire Mukesh Ambani had been in talks for months with Future, which is facing a cash crunch amid intensifying competition and the pandemic. By scooping up the country’s No. 2 retail chain, Ambani is also accelerating his group’s shift toward consumer businesses and undermining Future’s partner Amazon.com Inc., a key rival for Reliance’s nascent e-commerce business.
The transaction is a “bargain for Reliance, as the market was factoring going-concern issues” for Future’s units, Bhavin Gandhi and Harshraj Aggarwal, analysts at B&K Securities, wrote in a note to clients. Based on Future’s existing store formats, Reliance would become the largest competitor by revenue in fashion, lifestyle and groceries, they wrote.
As part of the deal, Future Group will merge some of its remaining businesses into Future Enterprises Ltd., Reliance said. Ambani’s unit will then invest 12 billion rupees to acquire about 6.1% stake in Future Enterprises, and a further 4 billion rupees of equity warrants convertible into 7.05% of Future Enterprises shares.
Shares in group companies Future Enterprises gained 5.5% on Monday, while Future Lifestyle Fashions Ltd. jumped 5%.
The transaction allows Reliance to increase its retail store footprint by 23.8 million square feet, adding to its current 28.7 million square feet, according to the B&K Securities note.
The assets are being acquired as going concerns on a slump sale basis, Reliance said.
The transaction will extend Reliance Retail’s leadership in a sector that’s estimated to be worth $1.3 trillion by 2025 from $700 billion in 2019, according to a February study by Boston Consulting Group and the Retailers’ Association India.
After launching a mobile phone carrier in 2016 that became the country’s largest, Ambani has vowed to transform Reliance by building up its digital services businesses, including e-commerce. That effort has drawn about $20 billion in stake purchases from some of the world’s biggest tech firms and private equity players, including Facebook Inc., Google, Intel Corp., General Atlantic and KKR & Co.
To rise to dominance in e-commerce, Ambani must challenge established platforms like Amazon.com and Walmart Inc.’s Indian affiliate FlipKart, which calls itself the country’s leading e-commerce business.
While Amazon Chairman Jeff Bezos has vowed to expand in India, announcing plans to invest $1 billion to help small businesses, the company is losing traction as Reliance takes over Future’s retail and logistics units.
Amazon last year agreed to purchase 49% of one of Future Group’s unlisted firms, allowing it to buy into Future Retail after a period of between three and 10 years. The two deepened that partnership in January, with Amazon becoming the authorized online sales channel for Future Retail stores that sell everything from groceries to cosmetics and apparel. In May, Amazon was considering increasing its stake in Future’s retail unit to as much as 49%, people familiar with the matter said at the time.
That deal didn’t materialize in time for Future, which struggled to pay debt in a pandemic-hit economy. India is expected to post the steepest quarterly decline in gross domestic product in Asia as it quickly becomes the global hotspot for coronavirus infections.
Future Group’s founder, billionaire Kishore Biyani, said in a separate statement that the deal “takes into account the interest of all its stakeholders including lenders, shareholders, creditors.”
The group Biyani leads has about 7.5 billion rupees of interest and principal due to bondholders this year, and 433.4 million rupees of the bill falls on Aug. 31, data compiled by Bloomberg show.
While Biyani has been struggling to meet debt deadlines, Ambani has been on a shopping spree.
Reliance Industries acquired a majority equity stake in digital pharmacy market place Netmeds for 6.2 billion rupees earlier this month. It is also in negotiations to either buy out or purchase stakes in companies including Urban Ladder, an online furniture seller and Zivame, a lingerie maker, according to people familiar with the matter.
Ambani’s success in luring investors to his Jio Platforms Ltd. business has also boosted his personal wealth, adding about $23 billion to his net worth this year and advancing his rank among the world’s richest to No. 8, according to the Bloomberg Billionaires Index.
(Updates with bond gains in second paragraph)
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