Moneycontrol PRO
you are here: HomeNewsBusiness

An analyst call in May gave an inkling of VG Siddhartha's problems

A letter believed to have been written by Siddhartha on July 27, 2019 states that he was under ‘tremendous pressure’ from private equity partners to buy back their shares

August 02, 2019 / 09:12 AM IST

Café Coffee Day founder VG Siddhartha's suicide has come as a shocker for India Inc. The financial distress that the late entrepreneur talks about in his letter was surprising, given his recent deal with L&T to exit Mindtree which had netted Siddhartha Rs 3,269 crore.

But trouble has been brewing for a while in Siddhartha’s coffee enterprise, and indications of it can be traced back to an analysts' call on May 29, 2019.

Most of the questions were around the company’s debt situation, despite the Mindtree stake sale being used to dilute the debt. Siddhartha was repeatedly pressed by analysts on the company's financial position, and also on the promoters' debt.

When one analyst wondered if there would be a payment problem as "there are a lot of promoter-level debt repayments expected for the next three to six months", Siddhartha said: “We have to see. We have managed a lot of things. We are the largest (coffee) grower in this country. If anything (we will and) we have honored our commitment for the last 25 years. We don't have any serious commitment like that.”

There were more pointed questions regarding payments to private equity firm KKR. An analyst asked Siddhartha if the promoter's pledge (which already was at 70 per cent) would increase further, given covenants were coming up in July, "as per your arrangement with KKR."

Close

The entrepreneur answered, "Nothing is... nothing will go up."

In his letter to the Board, shortly before he disappeared, Siddartha said he was under 'tremendous pressure' from private equity partners to buy back their shares, a transaction that he had partially undertaken after borrowing money from a friend.

Responding to the developments on Tuesday, KKR in a statement said:

"We are deeply saddened by the developments and our thoughts are with his family at this time. We believe in VG Siddhartha and had invested in the company about 9 years ago. We sold approximately 4.25% (of our total holding of approximately 10.3% in the company) in February, 2018 on the stock exchange and have not sold any shares before or after."

The debt problem

Even after using the Rs 3,269 crore proceeds of the Mindtree stake sale, Coffee Day Enterprises Ltd (CDEL) still had a net debt of Rs 2,400 crore, Siddhartha had said in the call. This was a significant increase compared to the Rs 3,600 crore net debt at the end of September 2018.

R Ram Mohan, CFO, said this is because the promoter debt of Rs 600 crore was added as L&T wanted to consolidate all debt and shares under one account. “Promoter had around INR 600 crores debt. Even that came as debt in the group. Today, everything is repaid,” he added.

The break-up of the Rs 2,400 crore debt was as follows — holding company CDEL: Rs 300 crore; logistics firm Sical: Rs 1,300 crore; Tanglin Development Ltd: Rs 800 crore; and the coffee business itself had a debt of Rs 300 crore. The company has a cash reserve of Rs 300 crore.

Siddhartha had said he intended to pare the debt down by 50 per cent in another 2-3 three months. Unfortunately, the situation seems to have got out of hand for the entrepreneur in the months that followed.

With the death of the coffee baron, the future of Coffee Day Enterprise Ltd (CDEL) is under a cloud.

The board meeting convened on Wednesday said the board will charter a plan to de-leverage the enterprise’s assets. According to the letter reportedly written by Siddhartha on July 27, 2019, his assets are worth Rs 18,000 crore.

These valuations exclude the Mindtree deal that was signed in March 2019, in which he sold his 21 per cent stake.

CDEL shares have been hammered in the last three days, and were at Rs 110.50 on Thursday, August 1, 2019 on the National Stock Exchange, down 9.98%.

Cumulatively the stock has more than halved in two weeks — it had closed at Rs 212.95 on Thursday, 18 July, 2019, and at Rs 191.75 on July 29, a day before VG Siddhartha went missing in Mangaluru.

The company's market cap has nosedived to Rs 2,343.84 crore as on August 1, 2019, and lenders are staring at a possible haircut.
Swathi Moorthy
first published: Aug 1, 2019 04:33 pm

stay updated

Get Daily News on your Browser
Sections
ISO 27001 - BSI Assurance Mark