Why CCD founder Siddhartha wants to sell his Mindtree stake
2 min read 29 Jan 2019, 08:29 AM ISTUrgency to exit may be linked to the ₹300 crore he owes IT deptRising debt at Sivan may also be a factor
PremiumEven as the tussle over the reported sale of IT services firm Mindtree enters a decisive phase, mystery surrounds the reasons why V.G. Siddhartha, the Bengaluru-based company’s largest investor, decided to exit. On one level, Siddhartha’s urgency in looking for a buyer for his 20.41% stake may be related to the ₹300 crore owed to income tax authorities, according to two executives familiar with the development. On another level, he may be under pressure because of rising debts at his investment firm Sivan Securities Pvt. Ltd.
In addition to the investment and venture capital business, Sivan Securities has three subsidiaries, including wood processing business Chetan Wood Processing Pvt. Ltd, hospitality business under Coffee Day Barefoot Resorts and timber trading done by Dark Forest Furniture Co.
While Sivan Securities managed to narrow its losses to ₹37.31 crore at the end of March 2018 from ₹46.4 crore in the previous year, its debt increased to ₹168.1 crore at the end of March 2018 as against ₹151.8 crore at the end of the previous fiscal year.
An email sent to Siddhartha seeking comment went unanswered.
The contours of a possible deal as they are emerging also place Siddhartha in a quandary about whether to sell his stake to an investor for a premium and let the buyer take control of the company or to honour his two-decade friendship with the founders of Mindtree and let go of extra money in return for ensuring their continuation at the top.
The outcome of the stake sale by Siddhartha, who first invested in Mindtree, when the company was set up in 1999, will decide the future of the nearly 20,000 employees, investors and of the four founders, who hold about 13.32% equity in the company. The founders have categorically ruled out selling their equity in the company.
“(All the founders) continue to share a very cordial and strong relationship with Siddhartha. He (Siddhartha) is facing some financial difficulty, which he hasn’t disclosed, and he wants to raise money. He has been the best passive investor the company could have had, someone who has never interfered in business. So the outcome of this sale will have no bearing on the relationship (with the founders)," said an executive familiar with the development, on the condition of anonymity.
“The founders understand his situation and respect his decision," said the executive cited above.
Significantly, the founders at Mindtree are not looking to pledge their shares or seek support from any large investors and are rather looking to shore up support from the company’s existing shareholders.
“The founders were not born rich… (the founders have) come from a middle-class background, people who were made rich by the company. (The founders) don’t have that kind of money to buy his entire stake neither are (the founders) businessmen, and so pledging of their own shares to raise money is not an option. If someone else is keen to take control of the company, I can assure you that the founders will not create any ruckus and will happily relinquish the control honourably," said the executive.
