New York-based private equity firm Apollo Global Management has opened a new front in its battle with Kishore Biyani’s insolvent retail operations, over the sale of assets involving the Future Group’s listed arm Future Supply Chain (FSC), a third-party supply chain and logistics service provider.
Apollo, on behalf of affiliate Aion Capital Partners, is exploring legal options against Future Group and has written to the Securities and Exchange Board of India (Sebi), as well as stock exchanges NSE and BSE opposing FSC’s move to sell its assets, people aware of the matter said.
On September 13, FSC informed the exchanges that its shareholders had approved a resolution to sell the assets. It did not, however, specify who the assets were being sold to. Being a special resolution, it required the vote of 76% of those present.
FSC’s portfolio of warehouses, backend technology and infrastructure make it valuable for any large retailer like Reliance Retail.
In April, a majority of the secured creditors of most Future Group entities voted against a resolution to approve the group’s Rs 24,713 crore plan to sell a big chunk of its retail and logistics businesses to Reliance Retail. This forced Reliance Industries chairman Mukesh Ambani to abandon the transaction, originally announced in August 2020.
Interestingly, 81.63% of FSC’s secured creditors had voted in favour of the scheme.
Subsequently, flagship Future Retail was admitted to the National Company Law Tribunal for insolvency proceedings after it defaulted on ₹3,495 crore debt.
As of June, the promoter shareholding in FSC was only 21.95% while 78.05% was with public shareholders.
Aion – an equal joint venture between ICICI Venture Funds Management Co Ltd and Apollo Global Management – had invested close to Rs 1,600 crore in various Future Group entities.
About 46.75% of the promoter shares in FSC were pledged with Aion, which had already invoked 24.8% to become the single largest shareholder of the company.
Its shares are being held through a trustee company, IDBI Trusteeship Services Ltd.
As the single largest shareholder, Aion/Apollo voted against the resolution of proposed asset sale, but FSC nullified their 1.08 crore votes, calling them “invalid” and citing the scrutiniser’s report.
However, the independent scrutiniser, K Bindu & Associates, which was appointed by the board of directors to validate the e-voting process, said in its report that it was “unable to express” any opinion on the subject.
Bindu Darshan Shah, the proprietor of the firm, wrote in his report that “the said Shares were acquired by the Trustee against invocation of pledge made by the Promoter/Promoter Group of the Company. The management of the company believes that the Trustee does not have any voting rights on invoked shares since no beneficiary rights are being transferred except for sale of the invoked shares.”
He cited a paragraph from a judgement of the Supreme Court in a civil appeal involving PTC India Financial Services and Venkateswarlu Kari, an interim resolution professional in the bankruptcy case of NSL Nagapatnam Power and Infratech Ltd.
“I am unable to express my opinion on the said judgement. Declaration of the results of the voting including consideration of validity of votes cast by the Trustee is the responsibility of the Chairman of the Company. As per the Scrutiniser’s responsibility, I am submitting my report to the Chairman of the Company for issuing the final result …The Chairman or any other person authorised by him having the power to consider the voting may accordingly decide and declare the final result,” Shah said.
Rakesh Biyani, brother of Future Group CEO Kishore Biyani, is the chairman of FSC.
He had rejected Aion/Apollo’s votes.
Rakesh Biyani did not offer any further comment when contacted. Emails to Kishore Biyani remained unanswered till press time Thursday. Apollo declined to comment.
Sources close to the PE fund, however, said that the issue had been simmering for months.
In April, these same shares were included in the vote count when the merger was voted on.
“So, these shares do have voting rights,” said an official familiar with the matter on condition of anonymity. “The pledge agreement also explicitly states that voting rights will transfer at the time of invocation.”
A board meeting followed on July 26 to discuss the same proposal.
Subsequently, in August, Aion/Apollo wrote to Future Group saying that they were not in favour of the deal and voted against the resolution on September 7, three days prior to the closing of the voting window.
“A pledgee is not the owner of the shares, so he doesn’t carry the voting rights. However, once pledged shares are invoked, the pledgee takes control of the actual shares. As per the provisions of the Companies Act, he then becomes a member shareholder making him the absolute owner of the shares and that gives him the proportionate voting rights just like any other shareholder, unless there are specific contractual clauses,” said Puneet Shah, partner, IC Universal Legal.