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Amazon considers direct investment in debt-ridden Future Retail

Amazon, which holds an indirect stake of 1.3% in Future Retail, could line up local investors to join the deal to trigger an open offer.

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Mumbai: Inc. is considering adding to its investment in Future Retail Ltd. as the debt-ridden Indian retailer battles a cash crunch, according to people familiar with the matter.

Amazon, which holds an indirect stake of 1.3% in Future Retail, is in talks with the company’s parent Future Group over the potential stock purchase, said the people, who asked not to be identified as the information is private. The U.S. online retail giant could raise its holdings in the retailer to as much as 49%, the people said.

As a purchase of more than a 25% stake could trigger an open offer under stock exchange rules, Amazon is considering lining up local investors to join the deal, the people said. Under India’s rules, foreign ownership in the so-called multi-brand retail trading industry — including department stores and supermarkets — is capped at 51%.

Shares of Future Retail rose 5% in Mumbai on Thursday, ending a seven-day losing streak. The company has a market value of about 40.5 billion rupees ($535 million).

Future Retail’s dollar-denominated bonds due in 2025 jumped 8.3 cents on Thursday to about 35.3 cents on the dollar. The move is the largest gain since the bonds were first sold in January, according to Bloomberg-compiled prices.

A change of ownership at Future Retail looms after the Biyani family, founders of Future Group, breached loan terms and came under pressure to sell their assets, Bloomberg News has reported. The world’s strictest shelter-at-home restrictions have hurt consumption in India, putting Asia’s third-largest economy on course for a rare contraction.

Amazon last year bought a 49% stake in Future Coupons Pvt Ltd., which owned 2.7% of Future Retail as of December, according to Bombay Stock Exchange data. That gave Amazon an effective 1.3% stake in the retailer, based on Bloomberg News calculations. As part of the Future Coupon agreement, Amazon has an option to acquire Future Coupon’s shares in Future Retail from the third year of the deal. Amazon also became the authorized online sales channel for Future Retail’s stores this year.

Deliberations are at an early stage and the companies can decide against any transactions, the people said. The Economic Times reported the potential deal on Thursday. Representatives for Amazon and Future Group declined to comment.

Future Retail has used about half of an emergency credit facility for working capital, Bloomberg News reported last week. Lenders allowed the firm to draw down 3 billion rupees of the 6.5 billion rupee credit line, people familiar with the matter have said. – Bloomberg

Also read: Amazon’s India site among one of its 5 domains helping counterfeiters, US says


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