Trouble brews as key Coffee Day lender Yes Bank stalls Blackstone deal
3 min read 09 Dec 2019, 11:46 PM ISTYes Bank will give a ‘no objection’ only if Coffee Day agrees to repay the entire loan or at least the loans taken by its armsThe sale of the 90-acre tech park on the outskirts of Bengaluru is to be used for repaying the debts of CCD's associate firms and their promoters
PremiumMumbai: Coffee Day Group’s proposed sale of its Global Village Technology Park to private equity firm Blackstone Group Llp has hit a hurdle, with the debt-laden group’s largest creditor, Yes Bank, signalling its reluctance to give approval to the ₹2,800 crore deal.
The sale of the 90-acre tech park on the outskirts of Bengaluru is to be used for repaying the debts of Cafe Coffee Day’s (CCD) associate firms and their promoters. Founder V.G. Siddhartha committed suicide in July.
Coffee Day Group firms and their promoters have total debts of at least $1 billion and Yes Bank is the single-largest lender to the group and its promoters, with an exposure of at least ₹1,500 crore.
Three people familiar with the sale process confirmed that Yes Bank has put a condition that it will give its “no objection" to the Blackstone deal only if Coffee Day agrees to repay the entire loan taken by the group from Yes Bank or at least the loans taken by Coffee Day’s subsidiaries Tanglin Developments Ltd (which owns the tech park) and Sical Logistics.
Tanglin Developments and Sical Logistics owe around ₹100 crore and ₹50 crore, respectively to Yes Bank.
Yes Bank, Coffee Day and Blackstone declined to comment on questions emailed on Thursday.
Among more than a dozen lenders, Yes Bank, which is dealing with its own liquidity crisis, is the only one yet to approve the deal with the New York-based private equity giant.
“Almost all statutory approvals, including the Karnataka government’s nod, have come, except for Yes Bank’s NOC," said one of the three people cited earlier. “Yes Bank has insisted that Coffee Day Group should ideally use the money from the first tranche of the Blackstone deal ( ₹2,000 crore) to pay off the group’s dues to Yes Bank rather than paying the lenders on a pro-rata basis."
On 6 September, Coffee Day Enterprises Ltd (CDEL), the listed group holding company, announced its agreement to sell the tech park to Blackstone—a deal that is crucial for the group.
“If the deal gets delayed for long or if it completely falls through, CCD and other group entities will find it increasingly difficult to raise enough capital either through bank loans or via monetization of stakes in subsidiaries," the second person said. “This is because lenders often avoid disbursing working capital loans to heavily indebted companies and investors typically refuse to pay premium to buy equity stakes in debt-ridden assets."
Around ₹2,000 crore from the deal was supposed to be used to repay CDEL’s debts, while ₹800 crore was to go into the books of CDEL to meet its working capital requirements.
The group sold its entire stake in software firm Mindtree Ltd to Larsen and Toubro Ltd for ₹3,200 crore in May, using part of the money to pay off debts.
At present, Coffee Day Group, which includes CDEL and its subsidiaries, has about ₹4,970 crore of debt, including ₹1,500 crore carried on the books of Sical. The group has planned to slash its debt to ₹1,300 crore in the next one year. Private promoter entities of the group have an additional debt of ₹3,000 crore.
Coffee Day Group is expected to reduce debts of ₹1,650 crore from the first tranche of the Blackstone deal. It is also planning to induct a strategic or financial partner into the flagship coffee retailing business CCD.
Both Yes Bank and Coffee Day Group are grappling with their own sets of issues. CDEL has dramatically lost market value after Siddhartha’s sudden death.
Over the past one year, shares of cash-starved Yes Bank have lost 67.64% to ₹56.20, while the CDEL stock has lost about 83.5% to ₹43.85 apiece. On Monday, the CDEL stock fell by 8.84%.
Coffee Day’s priority is to quickly repay debts and turn around market sentiment. On the other hand, Yes Bank is desperate to raise capital to be able to stay compliant with the Reserve Bank of India’s norms and arrest the incessant loss in its market cap.
As of the September quarter, Yes Bank’s tier I capital adequacy ratio stood at 11.5% against the regulatory requirement of 8.875%. Its common equity tier 1 capital stood at 8.7%, marginally above the regulatory requirement of 7.375%.
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