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The Hurdle Coffee Day’s Siddhartha Needs To Overcome To Sell Mindtree Stake

Shares of Mindtree Ltd. have risen about 8 percent so far on chances of it becoming a takeover target as the Coffee Day Group, its single-largest shareholder founded by VG Siddhartha, is said to be planning to sell its stake to pare debt.

The Coffee Day Group operates the Café Coffee Day chain, runs luxury resorts and a tech park, and provides port, warehousing, shipping, and rail and road transport services through different companies. As of December, Siddhartha, the group’s flagship Coffee Day Enterprises Ltd. and its step-down subsidiary Coffee Day Trading Ltd. held 20.4 percent stake in Mindtree.

VG Siddhartha, chairman of Coffee Day Group. (Source: Coffee Day Enterprises annual report)
VG Siddhartha, chairman of Coffee Day Group. (Source: Coffee Day Enterprises annual report)

But the Coffee Day Group finding it tough to sell the stake. Here’s why:

Pledged Shares

Coffee Day Enterprises had a total short- and long-term debt of Rs 6,500 crore as of September, according to its exchange filings. That included consolidated long-term borrowings of Rs 3,200 crore.

At current market prices, the group’s stake in Mindtree is worth about Rs 3,100 crore. But about 95.3 percent of those shares are pledged with banks and non-bank lenders, data on the BSE website show.

The Hurdle Coffee Day’s Siddhartha Needs To Overcome To Sell Mindtree Stake

According to the group’s 2017-18 annual report, the shares were offered as a security against secured and unsecured term loans. Aditya Birla Finance Ltd., Axis Bank Ltd., RBL Bank Ltd., Kotak Mahindra Investments Ltd. and Standard Chartered are among the financial institutions having a pledge on the shares.

The Hurdle Coffee Day’s Siddhartha Needs To Overcome To Sell Mindtree Stake

Bid To Revoke Pledged Shares

Siddhartha and Coffee Day Enterprises are looking to release pledged shares of Mindtree to sell them to an investor to raise funds, according to people familiar with the plans—they didn’t want to be identified as the talks are private.

The group is looking for a bridge loan from Standard Chartered Bank to release the pledge, the people said.

BloombergQuint’s emailed queries to Coffee Day Enterprises and Siddhartha remained unanswered. A Standard Chartered Bank spokesperson declined to comment.

What Makes It Tricky

Revoking pledged shares would require negotiation with various lenders and either replacement of the pledged shares with other assets or part repayment of the loans. Then the money raised from stake sale can be used to repay the bridge loan.

Moreover, apart from Mindtree and other Coffee Day Group companies’ shares, Siddhartha has also offered personal guarantees and other land and movable assets as a security for loans.

  • Siddhartha pledged shares of Coffee Day Enterprises and another listed group company—Sical Logistics Ltd.
  • Coffee Day Enterprises pledged shares of Coffee Day Global and Tanglin Developments Ltd., the unlisted subsidiaries that own the Café Coffee Day franchise and Sical Logistics.

In all, about 80 percent of the promoter holding in Coffee Day Enterprises and Sical Logistics is pledged, according to exchange filings. The total value of these shares at current market prices is around Rs 3,100 crore.

The Hurdle Coffee Day’s Siddhartha Needs To Overcome To Sell Mindtree Stake

Who’s Interested To Buy

L&T Infotech Ltd., the software services arm of Larsen and Toubro Ltd., is the frontrunner to acquire the 20.4 percent held by Coffee Day Group in Mindtree, according to reports by Mint and the Economic Times.

L&T group declined to comment on market speculation, while Coffee Day Enterprises and Siddhartha have yet to respond to emailed queries on the potential deal.

The reports said that private equity firm Barings is also in the race—it couldn’t be reach for a comment.

To be sure, Mindtree promoters, N Krishnakumar, Subroto Bagchi, NS Parthasarathy, Rostow Ravanan, own close to 13 percent. The IT services company’s board view on a possible takeover attempt is unknown.

Emailed queries to Mindtree on the potential sale of stake by Siddhartha and Coffee Day Enterprises remained unanswered.

The Hurdle Coffee Day’s Siddhartha Needs To Overcome To Sell Mindtree Stake