On Friday, Nippon Express, Japan’s largest logistics company is buying a 22% stake in Future Group's listed logistics arm Future Supply Chain SolutionsNSE -1.78 % (FSC) for ₹646 crore through a combination of primary issuance of shares and secondary purchase of shares, the company said as global majors see major uptrend in the sector on the back of e-commerce and rationalization of existing tax regime.

This would be the fourth fundraising initiative by Kishore Biyani, Future Group’s CEO in the last 12 months across group entities resulting in a cumulative capital infusion of ₹7,450 crore.

The transaction will see FSC issue 37,89,350 new shares through a preferential allotment at ₹664/share to Nippon Express – a 22 % premium to Thursday’s closing price. Additionally, SSG Capital, an existing shareholder since 2016 is cashing out its entire residual 14.6% stake at the same price. SSG, a Hong Kong-based investment company had entered the company after buying out Li and Fung’s 40% stake for ₹580 crore at a ₹1,450 crore valuation.

Nippon will have 1 board representation. The current market capitalization of FSC is ₹2,142 crore. Future Enterprises Limited owns 51.18% of FSC.

Nippon Express’ decision to expand its India footprint is part of its new “Nippon Express Group Business Plan 2023 -Dynamic Growth” beginning from the financial year 2018. India is part of a bigger push to capitalize of new growth opportunities on the back of modernization of the road infrastructure network, reorganization of traditional supply chain networks due to the implementation of GST and consumption growth are driven by a fast-growing middle-income group."

"The company has been present in India since 2007 and currently focusses on international freight forwarding of cargo arriving in and departing from India. A strategic partnership with FSC, one of the country’s leading 3rd party logistics 3PL players will further help to exploit Future Group’s own supply chain and logistics requirements plus its other third-party client base."

FSC covers the whole spectrum of supply chain services across logistics value chain including smart warehousing, transportation and distribution, last-mile delivery for a diverse set of clients ranging from Reckitt Benckiser, Kellogg India, Mondelez India, ITC, to Benetton India, TTK Prestige, Pepe Jeans, Snapdeal, Hitachi, Tata Motors among others.

Its FY19 top line grew 30% Y-O-Y to ₹1,234 crores with profits of ₹62.1 crores.

The domestic third party logistics space is expected to grow at a 19-20% CAGR to reach ₹58,000 crores by 2019-20.

“This is the second partnership that we are entering into with a Japanese corporation after 7-Eleven. We expect to derive significant synergies given our complementary skill sets and service offerings for Indian, MNC and Japanese clients,” said Biyani.

The world's largest convenience store chain, signed a master franchise agreement with Future Group earlier in Feb to open and manage the eponymous brand stores in India, one of the fastest-growing retail markets.

Future Retail's subsidiary SHME Food Brands will open newer stores and convert existing locations to the 7-Eleven brand, starting this Dec. 7-Eleven has around 67,000 stores world over including 7-Eleven among other retail formats, said products mainly in beverages, snacks and fresh foods with local recipes will be part of the initial convenience offering.

Khaitan & Co advised Nippon Express (South Asia & Oceania) Pte Ltd led by a team of partner Zakir Merchant along with principal associate Saswat Subasit, senior associate Suditi Surana and senior associate D Preethika with assistance from partner Arindam Ghosh, The team comprising of partner Anisha Chand, associate Anmol Awasthi and associate Vasudhaa Ahuja assisted on the competition law aspects.

The diligence team included associate Kaushik Babu, associate Pujitha Gullapalli and associate Agranee Kapoor with assistance from partner Nishad Nadkarni and senior associate Sourav Dan on the IP diligence.

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