V G Siddhartha, founder of popular coffee shop chain CCD, appears to have become a victim of the unfolding nationwide debt crisis triggered by the collapse of India’s largest shadow banking firm – IL& FS.
After writing a poignant note to board members of Café Coffee Day in which he said, “I have fought for a long time, but today I gave up,” Siddhartha, son in law of former Karnataka chief minister S.M.Krishna, drove down to the Netravati River near Mangaluru before going missing.
Defaults by the mega-non-banking finance company placed the Bengaluru based entrepreneur squarely in the red forcing him to sell his stake in Mindtree, a highly successful digital technology firm. Despite this sale which fetched him Rs 3269 crore, his debt pile problem seems to have remained. Bankers say that he had pledged his Mindtree shares for Rs 3000 crore and most of the money he received from L&T for selling his stake went to repay the debt.
Siddhartha had become a co-founder of Mindtree in 1999, when IT veteran Ashok Soota had roped him in with others including Subroto Bagchi, Rostow Ravanan and KK Natarajan for the venture. Siddhartha invested close to Rs 44 crore to buy a 6.6 per cent stake in Mindtree that was just starting up in 1999. In 2011, he picked up another 5.57 percent and 2.05 percent stakes for Rs 85 crore and Rs 40 crore respectively.
Later in 2012, he invested Rs 171 crore to buy an additional 6.84 percent stake in Mindtree. This translates roughly into an internal rate of return of 20.43 percent per annum. But all this ended with his sale to L&T, which too does not seem to have resolved his financial crisis. The total extent of Siddhartha’s personal liabilities is still not known.
An annexure to his letter to the board seems to show that CCD which had grown at a fast pace had started sinking into the red over the last few years. It, however, appears to indicate that the firm’s liabilities were lower than the value of its assets and the coffee seller should remain in the black. But bankers say that the billionaire Siddhartha’s personal debts were far more, which possibly weighed on his mind.
Siddhartha’s letter to his board members speaks of 'tremendous pressure' from private equity partners to buy back their shares, a transaction he had partially undertaken after borrowing money from a friend. He also spoke of a liquidity crunch due to harassment from a previous Director General of Income Tax with regard to the Mindtree deal.
“There was a lot of harassment from the previous DG of Income Tax in the form of attaching our shares on two separate occasions to block our Mindtree deal and then taking over our Coffee Day shares, although the revised returns have been filed by us," Siddhartha added.
Sources say that he was also under pressure because of rising debts at his investment firm Sivan Securities Pvt. Ltd. Besides, 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 through Dark Forest Furniture Co.
Siddhartha was believed to be considering selling another venture of his - realtor Tanglin Developments Ltd to New York-based private equity giant Blackstone Group for an estimated Rs. 2,700 - 2,800 crore. He was also talking to Coca-Cola to sell his flagship CCD chain to the snack food and cola giant. “The talks were at an initial stage. The companies had not even started discussing terms or reached any agreement on valuation,” said a source, close to the deal. Siddhartha’s insistence on keeping a stake in the company was a dealbreaker for Coca Cola, the source said.
Going by its financial reports, the company is on a growth trajectory. With 1,752 cafes across India as of March 2019, Café Coffee Day clocked a revenue of Rs 1,777 crore and Rs 1,814 crore in FY18 and 2019 respectively and is eyeing Rs 2,250 crore by March 2020. The venture was profitable but the company’s net debt according to reports stood at Rs 3,323.8 crore as on March 31, 2018.
It remains to be seen whether Siddhartha’s personal financial crisis will singe the large coffee chain or allow it to continue to function independently. “We think CCD is still safe. At worst there may be a change of management as its debt issues are resolved,” said a top banker.