In January, the I-T department had provisionally attached two million shares of Mindtree held by Siddhartha
The debt in question is around ₹2,000 crore and is over and above the consolidated borrowings of CCD group
Mumbai: Café Coffee Day founder V.G. Siddhartha, missing since Monday evening, was in talks to urgently refinance a large portion of his outstanding debt taken in his personal capacity, said two people directly aware of his discussions with lenders.
The debt in question is around ₹2,000 crore and is over and above the consolidated borrowings of Café Coffee Day (CCD) group, which stood at ₹6,547.38 crore as of March, according to the people cited above, who spoke on condition of anonymity.
“In our discussions, we were given to understand that most of the personal borrowing was done to invest in the plantations business, which is held privately by V.G. Siddhartha and his family. The business was not generating enough cash to service the outstanding debt, which had ballooned because of accruing interest, forcing him to borrow again and again, often at a higher cost to pay existing creditors. However, given the tight liquidity conditions in the market, he was having trouble raising fresh debt," said one of the two people cited earlier.
It is yet to be established whether Siddhartha’s disappearance on Monday is directly related to the spiralling debt situation. However, a letter purportedly written by him to the board and employees of CCD, that was notified to exchanges on Tuesday evening, says growing pressure from creditors as one of the probable reasons for his disappearance. “I am sorry to let down all the people that put their trust in me. I fought for a long time but today I gave up as I could not take any more pressure from one of the private equity partners forcing me to buy back shares, a transaction I had partially completed six months ago by borrowing a large sum of money from a friend. Tremendous pressure from other lenders lead to me succumbing to the situation," reads the letter.
Besides pressure from creditors and PE investors, the letter blames tax authorities for harassment over attaching his shares on two separate occasions to block a stake sale in software services firm Mindtree to Larsen and Toubro (L&T), which he maintains was unfair and led to a serious liquidity crunch.
In January, the income-tax department had provisionally attached two million shares of Mindtree held by Siddhartha. Also, in September 2017, the department had conducted raids on the properties owned by Siddhartha and on the offices of CCD group over suspicion of tax evasion.
In March this year, he had sold his entire 20.32% stake in the Bengaluru-headquartered IT services firm to engineering major L&T for around ₹3,200 crore, which was used to pare some debt from Coffee Day Enterprises Ltd’s balance sheet. Siddhartha, according to the people cited earlier, was acutely aware of the worsening financial situation of the group and had resolved to make the business debt-free before handing over the reins to his children. “He has been trying to monetize various parts of the business," said the first person cited earlier.
“He was in talks for partial or full stake sale in the coffee business, which had received a valuation of ₹7,000 crore and was looking to sell the group’s IT parks business," said the second person.
“In a lot of cases, term sheets have provisions that require the company to take an undertaking to buy back shares if there are no other modes of exit available to its private equity investors," said a third person, a senior lawyer who did not wish to be named. “There could also have been issues over default clauses in the term sheet, which could be quite draconian at times and may even require the promoter to dilute his shareholding or relinquish control in order to give an exit to the PE fund."
Coffee Day Enterprises is the holding company and the key companies of the group include Coffee Day Global Ltd (coffee business), Sical Logistics Ltd (integrated logistics), Tanglin Developments Ltd (real estate), Way2Wealth (financial services) and Coffee Day Hotels and Resorts Ltd (hospitality). In FY18, on a consolidated basis, the company reported a net profit of ₹148.25 crore on an operating income of ₹3,788 crore.
Ridhima Saxena and Ravindra Sonavane contributed to this story.