Future Retail guilty of financial irregularities, according to Amazon

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U.S. e-commerce giant Amazon wrote to the independent directors of Future Retail Limited (FRL), including Gagan Singh, Ravindra Dhariwal and Jacob Mathew, and its audit committee, providing data and alleging that there had been d ‘significant financial irregularities to the detriment of public shareholders, banks, creditors and third party suppliers. Amazon said this warrants a thorough and independent review of all relevant facts and related party transactions, including previous years, by an independent agency.

Separately, Amazon has written to the Chairman of the Securities and Exchange Board of India, Ajay Tyagi, to request the withdrawal of the conditional regulatory approval granted to FRL regarding the merger agreement between the Future Group and Reliance. The letter was also sent to senior scholarship officials.

Amazon’s letter to the independent directors of the FRL, dated November 24, which Commercial standard accessed, states: “Given the nature of the disclosure and findings, careful and detailed examination should be carried out by statutory authorities / regulators / enforcement agencies also to investigate and investigate financial statements and records, including transactions and discussions with related parties. at meetings of the board of directors and the audit committee, in the interest of public shareholders, banks, creditors and third-party suppliers.

Amazon is in a legal battle with FRL to end the Kishore Biyani-led retailer’s $ 3.4 billion deal with Reliance Industries Limited (RIL).

“A simple reading of FRL’s publicly available financial statements, including the latest financial statements for fiscal year 2020-202 … reveals, at first glance, that damage may have been caused to public shareholders, banks, creditors and FRL’s third-party vendors, “Amazon said in the letter.

He said similar concerns were also discussed at the FRL audit committee meeting held on March 23, 2020. The committee observed that there was a sudden increase in debt from February 2020 to March 23, 2020. .

“The members of the Committee expressed their serious concern regarding the deterioration of the financial situation, despite various mobilizations of equity and debt funds concluded in December 19 and March 20 and a detailed explanation of all the material transactions undertaken by the Company. requested by Committee members. “said the letter.

ALSO READ: Amazon’s letter is just an afterthought, according to the Future group

Amazon said FRL has regularly entered into “material related party transactions” with various entities of the Future Group, including Future Enterprises Limited, Future Supply Chain Solutions Limited, Future Consumer Limited, Future Corporate Resources Private Limited, Future Lifestyle Fashions Limited and others. Some of these related parties are primarily dependent on FRL for their activities.

“Amazon is bringing these facts to the attention of independent directors so that those directors, in accordance with their statutory and fiduciary obligations, can assess and investigate these matters … for the benefit of public shareholders, creditors, bankers and third party suppliers. from FRL, “the letter said.

She added that FRL and several related parties were in the process of implementing a composite scheme of arrangement. This, among other things, will lead to the dissolution of FRL and the final cession of its activities, he said.

Before the composite arrangement scheme is allowed to go any further, these issues should be thoroughly examined by an independent agency so that public stakeholders in FRL and other companies understand FRL’s actual financial situation, said Amazon.

In the four years leading up to the 2019-2020 fiscal year, Amazon said FRL generated significant operating cash flow (before working capital changes) to fund normal capital expenditures and working capital requirements. FRL’s balance sheet as at March 31, 2019 reflected a strong financial position against a backdrop of positive growth prospects for organized retail in India.

In fiscal year 2019-2020, FRL raised equity and equity of around Rs 8,000 crore and was able to generate additional buffer liquidity of around Rs 1,900 crore by delaying payments to creditors.


AMAZON’S ALLEGATIONS

  • FRL has systematically concluded significant transactions with related parties with various entities of the Future Group, some of which mainly depend on FRL for their activities.
  • FRL generated a cash buffer by delaying payments to third party creditors, possibly to pay related parties first

In the same fiscal year, FRL raised a substantial debt of nearly Rs 6,000 crore, due to which its net debt rose from around Rs 2,554 crore to around Rs 8,762 crore in just one year. Amazon pointed out that FRL’s debt ratio fell from 0.6 to 2.01 in one year.

He also alleged that FRL appears to have generated a cash buffer by delaying payments to third party creditors. This may have been done for the purpose of making payments to related parties in preference to reimbursement of amounts owed to third party creditors / sellers.

“A review of FRL’s financial statements shows that the funds raised in fiscal year 2019-2020 were primarily used for extraordinary cash outflows. This included payments of security deposits, advances to suppliers and the purchase of store infrastructure from related parties, ”he alleged. “All of this happened at the start of the Covid-19 pandemic in India, which resulted in nationwide lockdown restrictions being imposed, and this too, at a time when most, if not all, businesses kept money. “

Amazon said it will endeavor to provide other documents to assist independent directors and statutory authorities with their investigation.

In August 2019, Amazon acquired a 49% stake in Future Coupons, the promoter entity of Future Retail, for around Rs 1,500 crore. Sources said Future Group founder Kishore Biyani met with the chairman of India’s Competition Commission (ICC) to explain the structure of the deal between Future and Amazon in November 2019. The deal was sanctioned afterwards. the meeting.


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