Café Coffee Day, an Indian café chain, was founded by late V.G. Siddhartha who served as its Chairman and Managing Director. After going missing on the evening of July 29 2019, his body was spotted by three fishermen at the Hoige Bazaar beach, near the confluence of the river Netravati on July 31 2019.
Debt Crisis
Siddhartha appeared to have become a pray of the debt crisis prompted by the miscarry of India’s largest shadow banking firm – IL&FS. After the crisis was reported, Siddhartha’s financial condition became stressful, as he had considerable exposure to the stock market.
Siddhartha had started as a coffee planter slowly step up a stock broking company named Way2Wealth. This company dealt in stock-trading. Being son-in-law of former external affairs minister S.M. Krishna, he was also associated in many land dealings of the latter. The exposure to the stock market took an exaction on his finances.
Preceding six months, Siddhartha had borrowed, raising as much as Rs.1500 crore, even though an excess of indebtedness was over looming him and the company. Data from the registrar of companies show that capital was raised by gaging shares, but none of the amount raised was used to repay the existing dues.
Siddhartha addressed a letter to the company board and employees, dated July 27 2019. The letter stated that he was under pressure from one of the private equity partners to buy back shares. He also mentioned that there was much harassment from the previous Director General of Income Tax about Mindtree (a successful digital technology firm) deal.
As soon as the news of V.G. Siddhartha being missing spread, Coffee Day Enterprises Ltd had to witness its graph going down. 20% of the shares of the company dropped on July 28, which took away Rs. 813 crore from its market valuation.
Sources report that he was in talks with the beverage giant, Coca-Cola, to sell the flagship brand Coffee Day Global Ltd for an estimated Rs.10,000 crore. It was, yet, the starting stage of conversation as the companies had not even conferred on the terms. Moreover, it was said that he was considering to sell off another venture of his – real estate venture Tanglin Developments Ltd to a New York-based private equity company named Blackstone Group for an estimated amount of Rs.2700 – 2800 crore.
The venture was running profitable as the revenue as of 2019 was reported to be around Rs. 1,814 crores. However, the net debt of the company stood according to CMIE estimates, for 2018/19 is around Rs 6,547 crore. The company is yet to announce its annual report for 2019.
What next for CDEL?
The board of Coffee Day Enterprises (CDEL), informed that the company had appointed Ernst and Young LLP (EY) to look into the circumstances that led to the assertions made in the alleged letter of its former Managing Director.
Shortly after his body was found, the board of CDEL held a meeting. They appointed one of its independent directors S.V. Ranganath as interim chairman of the Board, Nitin Bagmane as an interim COO and R. Ram Mohan as CFO, to exercise the powers of a CEO. Interestingly, CDEL never had a CEO; as CMD, Siddhartha was carrying out the role of a CEO.
The company also announced that it had nominated Malavika Hegde (V.G. Siddhartha’s wife) as an additional member of the executive committee.
Upcoming days will unfold more reality about the Coffee Day Enterprises.
