The Future Retail-Amazon deal seems to have hit a roadblock after the government announced changes to foreign direct investment (FDI) norms for e-commerce companies, multiple sources familiar with the matter told CNBC-TV18 on Tuesday.
The deal between Kishore Biyani's Future and Jeff Bezos' Amazon needs to be reworked for it to go through, said the above mentioned sources on the condition of anonymity.
The development comes after the government last week took a host of steps and barred e-commerce firms from selling products of the companies in which they have equity stakes or management control.
The commerce and industry ministry also prohibited e-commerce companies from entering into an agreement for exclusive sale of products. The new changes will come into effect from February 1, 2019.
What this means for Amazon and Future Retail is that if the deal goes through, Amazon will not be able to sell Future Retail goods on its website. Over the last couple of months, Amazon has been in talks to buy 9.5 percent in Future retail with an option to raise stake at a later stage.
The new policy has created a lot of confusion among the market players. The sources said that Amazon is in the process of seeking clarity on applicability of several aspects of the recent policy changes.
The companies are also seeking clarity on the applicability of new norms for investments made through investment arms and will likely explore legal options to understand the feasible investment structure.
Some clarity on potential deal structure could be possible in the second week of January, said the sources.
The potential deal could be a win-win for both Amazon and Future Retail.
The funds from Amazon will provide Future Retail the required ammunition to take on rivals, both in the physical and online world while Amazon will be able to strengthen its presence in India and also take on rival Walmart, which last year bought a majority stake in online retailer Flipkart.
An email to Future Retail did not elicit a response. Amazon said it does not comment on speculations.
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