By Andy Mukherjee
After Amazon.com Inc., it’s Apollo Global Management Inc.’s turn to wade through the jungle of corporate governance in India. He sued a Mumbai-based warehousing company in which he has a large stake. The cause of the dispute disappeared on Monday when the company abandoned a controversial plan to sell its business. But the American shareholder, whose refusal of the operation was pushed into the background by the board of directors, still has to worry about his rights. After all, when the world’s largest retailer couldn’t enforce contracts in the country, why should a buyout firm fare better?
Amazon and Apollo had made separate investments in private ventures in Kishore Biyani, a pioneer of modern-format stores in a country still dominated by family-run neighborhood shops. The Seattle-based e-commerce giant had bought $192 million worth of stock in its gift certificate unit so the founder could invest the money in his retail business. The New York-based asset manager had provided a loan of Rs 1,600 crore ($200 million) to some of Biyani’s holding companies.
But after the Covid-19 hit, the group’s debt got out of hand. Biyani could not hope for a straightforward bailout of Future Retail Ltd., its flagship, publicly traded unit, by Amazon due to India’s 2018 restrictions on foreign retail investment. So, in desperation, he sold his assets to Reliance Industries Ltd. of Mukesh Ambani, although the terms of Amazon’s investment in Future Coupons Pvt. banned a sale to the billionaire tycoon, who also owns India’s biggest retailer.
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Even though the ensuing legal dispute between Future Retail and Amazon over breach of contract delayed the sale by $3.4 billion, Reliance took over the lease of the stores from Biyani and used it to snatch physical possession of the stores. when they couldn’t pay the rent on their sublet. Worse still, India’s antitrust authority suspended its earlier approval for the US company’s investment in Coupons. He also fined Amazon for allegedly not disclosing his true intentions to use coupons to get behind the wheel at Retail. Amazon’s legal case was cut at the knees.
This all happened in March. More recently, a similar story has begun to unfold for Apollo. He had received, among other guarantees, a lien on the shares of Future Supply Chain Solutions Ltd., another listed company in Biyani’s group. In the event of non-payment, the buyout company invoked the pledge and became the 24.8% owner. Yet when Supply Chain recently proposed to shareholders that they sell, transfer or otherwise dispose of the retail group’s assets, the “no” votes cast by Apollo were dismissed as invalid. The resolution passed when it would otherwise have been defeated. Apollo might have hoped to improve its recovery rate on the soured loan by influencing the fate of 8.2 million square feet of warehouse space, which the Biyani family could still – directly or through another buyer – pass on in Ambani. This plan has now come a cropper.
As recently as April, when Amazon’s legal challenge had already been rendered moot by Ambani’s ownership of the stores, Future Group companies had questioned creditors and shareholders for a proposed asset transfer. at Reliance. At Supply Chain, Apollo had voted against the plan. At that time, his views didn’t matter because Indian lenders to Future Retail – the core business – had scuttled the Reliance deal, balking at the 66% discount he was considering for them.
Curiously, however, the same ballot teller who had counted Apollo’s entry as valid at the time rejected it five months later. It appears that Supply Chain management does not believe the buyout company has any voting rights to the pledged shares transferred into its name. Beyond producing an Indian Supreme Court order that would have supported such an interpretation in another case, the scrutineer declined to express his own opinion and referred the question of the validity of the votes to the President. And who could he be? Rakesh Biyani, a cousin of Kishore. (My emailed questions to Future Supply Chain about the voting process went unanswered. In a Monday night notification to exchanges, the company said it was canceling the sale proposal due to an “expected delay in obtaining other required approvals”. whether Apollo has rights as a shareholder remains unresolved.)
The Economic period announced for the first time on Friday that the asset manager was considering legal action. The outcome of the lawsuit, which has since been filed, may be more important to India than Apollo. That creditors are informed that the shares promised to them do not carry voting rights is a serious setback for the Indian equity financing market; this will harm genuine borrowers in the future.
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Things could have turned out differently if Amazon had bought out the loans from Biyani by Apollo, Blackstone Inc. and others, and then tried to enforce its rights as a creditor through bankruptcy court. (Flagship Future Retail entered the formal insolvency process in July with almost nothing left for creditors to collect their $2.7 billion in debt.)
India’s six-year-old insolvency law is far from perfect. Yet when court-appointed trustees take on errant debtors, they provide protection against arbitrary actions by boards of trustees. Amazon was foiled when directors of Future Retail complained to the competition authority, questioning the legality of their own action in backing the e-commerce company’s investment in 2019.
Now that Supply Chain has abandoned plans to sell its warehouses, Apollo’s interests are protected. But given the unwavering loyalty of corporate families to corporate boards, any reprieve may well prove temporary. With more than $515 billion in assets under management worldwide, the buyout firm wouldn’t worry too much about a $200 million loan being anything but a write-off. However, to be robbed first of the capital and the interests, then also of the vote and the voice, it is the insult which is added to the insult. If a pedigree investor takes him lying down, the jungle will mark him as easy prey.