Highlights:
- Lenders, including a foreign bank, said to have questioned the CCD founder’s ability to repay on time
- Siddhartha was under pressure to explain to lenders the end use of the funds raised by him
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Details throwing new light on the circumstances preceding VG Siddhartha’s death indicate that the Café Coffee Day (CCD) founder was under pressure to explain to lenders the end use of the funds raised by him in his personal capacity.
Lenders, including a domestic private bank, a foreign bank and a clutch of credit funds, had questioned Siddhartha’s ability to repay on time and cast doubts on the final value of his assets, including the plantations business spanning over 12,000 acres, according to two people directly aware of the discussions between Siddhartha and the creditors.
According to the loan agreements, the lenders could invoke share pledges to take control of underlying security which included land holdings of the late CCD founder, the people cited above said on condition of anonymity.
"At least one of the existing private equity (PE) investors also had a ‘put option’ which could be exercised to force Siddhartha to buy back the stake held by it," said one of the two people cited above.
Significantly, at least two of CCD’s existing PE investors, which includes KKR India and Standard Chartered Private Equity, had also invested in the debt of the group’s various entities.
According to corporate filings reviewed by Mint, Coffee Day Enterprises (CDEL) the listed holding company of the group, had in 2014 issued 1.36 million non-cumulative compulsorily convertible preference shares (CCPS) to Standard Chartered Private Equity (Mauritius) II. These CCPS carry a dividend rate of 0.001 percent per annum.
Similarly, CDEL had sold 27.16 million zero coupon compulsorily convertible debentures (CCDs) of Rs 100 each to KKR Mauritius PE Investments II in 2014. No interest was to be payable on CCDs.
However, in the event that the company declares any dividend to the shareholders, the investor shall be entitled to receive the economic equivalent of the amount of dividend that the CCDs would have been entitled to on a fully diluted basis by way of interest in the manner determined in the agreement.
As per the agreement, both PE investors can at any time after the seventh anniversary (extendable up to 10 years) of the issue of the CCDs convert the same into equity shares.
Mint had reported on July 30 that Siddhartha was in talks to urgently refinance a large portion of his outstanding debt taken in his personal capacity. The debt in question is around Rs 2,000 crore and is over and above the consolidated borrowings of the Café Coffee Day (CCD) group, which stood at Rs 6,547.38 crore as of March, according to the people cited above.
In a letter to the board and employees of CCD, purportedly written before his death, Siddhartha had pegged the value of the plantations business at over Rs 3,000 crore which included the value of the land as well as timber assets (Silver Oak trees) at over Rs 1,000 crore.
"We had reservations about the valuations and felt that actually, the value would be less than that, and this did not provide enough cover for fresh loans," said a third person who heads India operations of a global structured credit fund.
Mint had reported on July 30 citing people aware of the matter that most of the personal borrowings of Siddhartha had gone towards acquiring land for the plantations business.
On July 31, the board of CDEL announced that its board has initiated a probe into past transactions made by the company and Siddhartha.
"The board took cognizance of statements in the purported letter from VG Siddhartha relating to financial transactions outside the knowledge of the senior management, auditors and the board. While the authenticity of the letter is unverified and it is unclear whether these statements pertain to the company or the personal holdings of Siddhartha, the board took serious note of the same and resolved to thoroughly investigate this matter," the company said in the filing.
Distancing his family and team of his financial dealings, Siddhartha had written in the note, "I sincerely request each of you to be strong and to continue running these businesses with new management. I am solely responsible for all mistakes. Every financial transaction is my responsibility. My team, auditors and senior management are totally unaware of all my transactions. The law should hold me and only me accountable, as I have withheld this information from everybody, including my family."
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