Body of India Coffee King Found as Letter Hints at Debt Woes
(Bloomberg) -- V.G. Siddhartha, the founder of India’s biggest coffee chain, has been confirmed dead days after he purportedly wrote a letter indicating he was anxious about pressure from banks, investors and the tax authorities.
Siddhartha told his driver he was going for a walk on Monday, near a bridge close to the southern Indian city of Mangaluru. He was reported missing after he failed to return to the car later that night. The city’s police commissioner Sandeep Patil said early Wednesday that Siddhartha’s body had been found, but didn’t elaborate on the circumstances of his death.
Coffee Day Enterprises Ltd., the company Siddhartha founded, released a letter on Tuesday purportedly written by him to the board. It talks of “succumbing to the situation” because of pressure from lenders and one of the company’s private equity partners, as well as harassment by tax officials. The letter, printed on a white sheet of paper bearing Siddhartha’s name boldly on top and Coffee Day’s address at the bottom, is addressed to the company’s board and employees.
Read rating company ICRA’s statement on Coffee Day’s credit rating
“I gave it my all 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,” according to the letter dated July 27. The harassment by tax officials and pressure from lenders led to a “serious liquidity crunch.”
Note to Assistant
Siddhartha’s last note was handed to his assistant who was told to send it to top company officials the next morning, according to a person familiar with the matter who asked not to be identified because the matter is private. When he went missing in the evening, the assistant immediately sent out the notes, the person said.
Coffee Day’s board appointed S.V. Ranganath as the interim chairman and Nitin Bagmane as the interim chief operating officer, according to an exchange filing Wednesday. The board also “took serious note” of the “unverified” letter from Siddhartha and “resolved to thoroughly investigate this matter.”
Coffee Day went public in 2015, nearly two decades after opening its first cafe in Bengaluru, selling shares at 328 rupees apiece. A unit of private equity firm KKR & Co. owns 6.07% of the company. Standard Chartered Private Equity holds 5.7%, while Nandan Nilekani, co-founder of Infosys Ltd., has a 2.69% stake.
“We are deeply saddened by the developments and our thoughts are with his family at this time,” KKR said in an email.
KKR’s fund sold 4.25% of its holding of about 10.3% in February, 2018 and haven’t sold any shares before or since, according to the email.
“We backed VG Siddhartha in early 2010 and have had a great relationship with him throughout,” Standard Chartered Private Equity said in an email. The PE firm sold about 1% on the exchange in April 2018 and hasn’t sold anything since, it said.
Coffee Day’s shares closed 20% lower for a second day on Wednesday, taking this year’s loss to 56%. Shares of Sical Logistics Ltd., another company where Siddhartha’s family is a large investor, also plunged by nearly 20% on Tuesday and Wednesday.
Siddhartha’s cafe network traces its roots to the IT hub of Bengaluru in 1996, and it established a foothold in India’s fledgling coffee scene more than a decade before Starbucks Corp. entered Asia’s third-largest economy.
But there were signs Siddhartha and Coffee Day were struggling with debt.
He and other founders of Coffee Day pledged about 76% of their holdings as collateral, according to filings. The debt burden prompted him to start selling assets earlier this year. In April, he sold a 20% stake in software services firm Mindtree Ltd. to engineering giant Larsen & Toubro Ltd. He was seeking a valuation of as much as $1.45 billion from Coca-Cola Co. to sell a stake in Coffee Day, the Economic Times newspaper reported last month.
Debt at Coffee Day rose 29% to 65.5 billion rupees ($952 million) in the financial year ended March 31 from a year earlier. Its debt-to-Ebitda ratio jumped to 11.4 from 6.7 over the same period, according to data compiled by Bloomberg.
The company “remains deeply committed to safeguarding the interests of all stakeholders, including investors, lenders, employees and customers,” Coffee Day said in the Wednesday exchange filing.
Siddhartha’s death did prompt Tokyo-based Impact HD, which has a joint venture with the coffee chain to open convenience stores across India, to delay the opening of its first ‘Coffee Day essentials’ store, it said in a statement. The store was scheduled to open on Aug. 1 in Bangalore. The Japanese firm doesn’t expect any impact from his death on the two firms’ joint venture, according to the statement.
“We think there is adequate top management bandwidth to continue with day-to-day operations in the near term,” Morgan Stanley analysts Nillai Shah and Archana Menon wrote in a July 30 note to clients.
Siddhartha, who began his career as an investment banker, was the son-in-law of Indian politician S.M. Krishna, who also served as nation’s external affairs minister from 2009 to 2012. A media-shy entrepreneur, who rarely gave interviews, he came from India’s coffee heartland of Chikmagalur where his family has grown the bean on its estates since 1870, according to a report by The Times of India.
He got inspired to start his own branded coffee chain after meeting an executive from the family that owns German coffee brand Tchibo, the Times of India report said. Tchibo started small in 1949 and went on to become one of the biggest roasters in Europe.
More Than Starbucks
Coffee Day has about 1,700 outlets, 10 times more than what Starbucks runs in the nation, according to the National Restaurant Association of India.
Siddhartha had sleepless nights when Starbucks entered India, according to an article he wrote for the Outlook magazine in 2016.
He had a “miserable moment” when Coffee Days stock tanked at its debut, giving him “quite an ego blow,” he wrote in the column.
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