L&T rescues Kishore Biyani; agrees to buy 51% in general insurance JV

Kishore Biyani, who calls himself as “creator and destroyer”, has hived off yet one more of his non-core businesses. Soon he may re-focus on the retail world, from where he started

Engineering and construction conglomerate Larsen & Toubro (L&T) on Tuesday signed a non-binding term sheet with Italy-based Generali Group and Kishore Biyani-led Future Group for acquiring 51% stake in Future Generali India Insurance (FGI). No financial details were provided but according to media reports, the deal is valued at about Rs560 crore.


FGI is a joint venture between Future Group, owning 74% stake and Generali Group owning 26% stake. Pantaloon Retail, a group company of Future Group would sell its entire 50% stake and the Biyani family, which holds 24% stake in FGI at present, would sell 1% of its stake to L&T for an undisclosed sum.


Biyani is desperately trying to reduce his debt which alone had fuelled his aggressive no-free-cash-flow growth from the mid-2000s.


Earlier this month, Pantaloon Retail sold its 22.5% stake in Future Generali Life Insurance to investment company IITL for about Rs300 crore, valuing the JV at over Rs1,330 crore. The flagship Future Group of Kishore Biyani, which is into retail business through Big Bazaar, Food Bazaar and e-zone and Pantaloon had a debt of over Rs8,000 crore late last year.


Last year, the group hived off its flagship Pantaloon into a separate entity to sell majority stake in it to Aditya Birla Nuvo (ABNL), which agreed to infuse Rs1,600 crore. Biyani also transferred the debt of Rs800 crore to ABNL.


Similarly, in June the debt-ridden Future Group sold its 53.67% stake in Future Capital Holdings to US-based private equity Warburg Pincus for an estimated Rs560 crore. It also got a private placement of about Rs200 crore from Bennet, Coleman & Co (the publishers of Times of India).


Biyani's recent key restructure transactions include stake sale in Pantaloon to ABNL, divestment in Future Capital and demerger of Fashion business of Pantaloon Retail and Future Ventures into Future Lifestyles.


As of 31 December 2012, Pantaloon Retail had a retail debt of about Rs5,400 crore. Once the above mentioned transactions are complete the debt would reduce by Rs2,820 crore, according to the management.


Hong Kong-based Li & Fung, the investor and partner in Biyani's logistics venture Future Supply Chain Solutions, has shown keenness to increase its stake from the current 30% in the JV. This would mean more inflow to Biyani.


While expanding the Future Group beyond retail, Biyani took several risks and in the process incurred huge debt. It appears that he is hiving off his non-core business and may again focus on retail, from where he started. However, this business is low-margin and Big Bazaar and very little customer loyalty. The only way Biyani could grow was through borrowings. And now is he reducing his borrowings.


A slowdown in discretionary spending (only discount driven sales is pulling customers) and cannibalisation from new stores is limiting growth of most retailers. “We are enthused by the pick-up in deleveraging steps initiated by Pantaloon, but believe refocus on core retail business is essential to address slow same store sales growth,” Edelweiss Securities had said in a report.


In his book “It Happened in India” published in 2007, Biyani had written, “There are three kinds of entrepreneurs—creators, preservers and destroyers. I consider myself to be both creator and destroyer. Preserving the status quo has never been my cup of tea’’. This is turning out to be true in a bizarre way.

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