In Bezos vs Ambani Battle, Focus on Disclosures by Amazon
In the Jeff Bezos vs Mukesh Ambani battle royale for the Indian retail market, which is now also evolving into a 'videshi vs swadeshi' battle, questions are being raised by corporate watchers.
 
Eight absolutely unknown facts are emerging in the Bezos vs Ambani battle.
 
1. Has Amazon's Jeff Bezos disclosed all of the Amazon-Future agreements to Future Retail Ltd (FRL) shareholders?
 
To this, corporate watchers say no. Mr Bezos has invested 49% in Future Coupons Ltd (FCL), a promoter company of FRL. 51% of FCL is held by Kishore Biyani, an Indian resident. FCL, in turn, has 9.82% holding in FRL.
 
It looks as though that FCL is controlled by Biyani with his holding of 51%. This is a requirement under India's FDI regulations.
 
Mr Bezos cannot hold directly even one share in FRL. On the face of it, he seems to be in compliance with FDI regulations. But, the reality is different.
 
In a two-tier structure, Mr Bezos has taken control of FRL, which is prohibited under FDI Regulations:
 
(i) Tier-1 is a shareholders' agreement between FRL, FCL and other promoters of FRL - in terms of this agreement, without FCL's consent, FRL cannot transfer its assets or business to any third party and its board cannot even consider such a proposal.
 
(ii) Tier-2 is a shareholders' agreement between FCL, Amazon and other promoters of FRL - in terms of this agreement, Mr Bezos has taken over the rights of FCL under the FRL shareholders' agreement.
 
(iii) Thus, effectively Mr Bezos controls FRL.
 
The Future Retail shareholders' agreement and the Future Coupons shareholders' agreement have never been disclosed to any Indian regulator.
 
If they are disclosed:
 
(i) SEBI (Securities and Exchange Board of India) will find that Mr Bezos has taken control of FRL and will mandate him to make an open offer at a price of Rs500 per share.
 
(ii) ED (enforcement directorate) will find that Mr Bezos has invested in and taken control of a multi-brand retail company without government approval and hoodwinked the government of India.
 
2. Has FRL amended its articles of association?
 
Amazon's rights in FCL were carried as part of the amendment to the articles of association of FCL.
 
FRL's articles of association have not been amended. This is because, had the amendment been proposed to the shareholders disclosing that Amazon will exercise the rights of FCL under FRL shareholders' agreement, the public shareholders would have never approved it.
 
3. Amazon could not have invested in FRL through FDI route under FDI policy. Then, how does it have enforceable rights against FRL?
 
For this, Amazon has gone through the above mired (and convoluted) structure;
 
FRL is engaged in multi-brand retail trade (MBRT); foreign direct investment (FDI) - up to 51% - in MBRT is allowed only with prior permission of the government, which will also be subject to veracious conditions, including sourcing of materials within India and management control etc;
 
Amazon wants to control multi-brand retail space, but without any of the legal hassles; therefore, in a convoluted manner, it went ahead with the mired illegal structure; if the veil is pierced and the transaction structure is studied in detail, it will be found illegal, corporate watchers said.
 
The fact that Amazon has obtained an interim order from the emergency arbitrator injuncting the public company, FRL not to proceed with the scheme, in spite of not having any direct shareholding in FRL, shows that the contractual rights are nothing but 'control', in violation of SEBI and FDI regulations.
 
Mr Bezos is learnt to have followed a similar investment structure while investing in More Retail; where he invested Rs4,200 crore;
 
For FDI violations, the consequence is, apart from annulment of transactions, Mr Bezos is exposed to penalty of up to three times the investment - Rs5,630 crore x 3 times = Rs16,890 crore, sources said.
 
For violation of SEBI Takeover Regulations, apart from penalty, they may also be liable to be prosecuted.
 
4. How, as a foreign company, Amazon asserted control over FRL and its board? And on FRL's shareholders?
 
The assertion shows that Amazon has violated FDI and SEBI regulations. If Amazon asserts control, it needs to make an open offer.
 
5. Amazon is asserting control over FRL. Does it violate FDI policy?
 
Yes.
 
6. Have all of the agreements been disclosed to regulators - SEBI, ED, etc.?
 
No - details of transaction selectively provided - in an obfuscated manner
 
ED, SEBI, ministry of company affairs (MCA), and other authorities, etc, must direct Amazon to disclose the agreements and details of actual arrangements in and commence inquiry.
 
7. What is the crux of the SIAC'd interim order?
 
It records that Amazon's entire investment was for its direct interests in FRL.
 
8. Is Mukesh Ambani a competitor of Mr Bezos?
 
Mr Bezos cannot carry on multi-brand retail in India. He can carry on only market-place e-commerce in India. Yet, his Amazon is referring to Ambani's Reliance as its competitor. Reliance can be Amazon's competitor only if the latter is permitted to do MBRT.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Hotel industry's recovery to pre-Covid levels profits 3 years away: ICRA
    The Indian hotel industry's recovery to pre-Covid levels profits is at least three years away, ratings agency ICRA has said.
     
    The ratings agency said that road ahead for the industry is rough as revenues and margins are expected to post record decline in FY21 with losses mounting over the next two years.
     
    The hotel industry has witnessed one of the worst revenue declines, in Q1FY21, with revenues for the industry sample declining by 85 per cent.
     
    "Given the high operating and financial leverage in the industry, the revenue decline led to huge operating and net losses in Q1 FY2021 despite the extensive cost-cutting measures adopted by most entities in the industry," ICRA said in a statement.
     
    "Despite sharp weakening in interest coverage, recourse to the RBI provided moratorium on debt servicing as part of its Covid relief package announced in March 2020 supported the industry."
     
    As per the statement, about 66 per cent of ICRA's hospitality portfolio applied for moratorium under this scheme and several of these will apply for restructuring under the K.V. Kamath committee too.
     
    "Although hotels have been gradually allowed to reopen, occupancies have remained subdued in H1FY2021," the statement said.
     
    "This will keep revenues moderated, resulting in operating losses and stretched debt metrics during FY2021 and FY2022."
     
    The industry has reported a 2.7 per cent de-growth in topline with flat operating margins at 22 per cent in FY2020.
     
    "With an 85 per cent YoY decline witnessed in revenues in Q1 FY2021 and subdued occupancies witnessed in Q2 FY2021 as well, industry wide revenues are expected to witness sharp de-growth of 60-65 per cent for FY2021," ICRA said.
     
    "Despite several measures taken by the companies to variabilise the fixed costs, the industry is likely to report massive operating and net losses in FY2021."
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Future-Reliance Retail deal stalled; RRVL says 'intend to enforce rights & complete transaction'
    E-commerce major Amazon has got a favourable ruling in Singapore regarding the Reliance Retail's buyout of the debt-laden Future Group as the deal has been temporarily stalled.
     
    Reliance Retail Ventures Ltd in a statement said that it has entered into the transaction for acquisition of assets and business of Future Retail Limited under proper legal advice and the rights and obligations are fully enforceable under Indian law.
     
    "RRVL intends to enforce its rights and complete the transaction in terms of the scheme and agreement with Future group without any delay," it said.
     
    The arbitration panel, in an interim order, has directed the Kishore Biyani-led Future Group not to proceed with the deal with Reliance Retail for now.
     
    "We welcome the award of the Emergency Arbitrator. We are grateful for the order which grants all the reliefs that were sought. We remain committed to an expeditious conclusion of the arbitration process," an Amazon spokesperson said.
     
    Future Group, however, did not immediately respond on the matter.
     
    In a major turn of events in the buyout of the businesses of the debt laden Future Group by Reliance Retail, e-commerce giant Amazon.com earlier this month stepped in and said that Future Group violated a contract with it by entering into the sale agreement with the Mukesh Ambani-led retail major.
     
    Last year, Amazon acquired a 49 per cent stake in Future Coupons, a Future group entity.
     
    In August, Reliance Retail Ventures Limited (RRVL), a subsidiary of RIL announced that it is acquiring the retail, wholesale, logistics and warehousing business from the Future Group as going concerns on a slump sale basis for lump sum aggregate consideration of Rs 24,713 crore, subject to adjustments as set out in the composite scheme of arrangement.
     
    The acquisition is part of the scheme in which the Future Group is merging certain companies carrying on the aforesaid businesses into Future Enterprises Limited (FEL).
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    saharaaj

    4 weeks ago

    Two crooks fighting losers small investors

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