VG Siddhartha: Trapped By Debt
The body of Siddhartha was found on the banks of the Nethrvathi river near Mangaluru.
VG Siddhartha, the founder of India’s largest coffee chain, sold stake in software services provider Mindtree Ltd. earlier this year to repay debt. But that would have helped cover only a third of his and Coffee Day Group’s liabilities.
The total debt is around Rs 10,000 crore, according to filings with stock exchanges and the Ministry of Corporate Affairs analysed by BloombergQuint. A third of that came from private companies owned by Siddhartha. The remaining two-thirds of the burden is on the books of the Coffee Day Enterprises Ltd.
On Wednesday, the body of Siddhartha was found on the banks of the Netravati river near Mangaluru, five kilometres from the bridge where his driver last saw him around 36 hours ago. In a letter that his family handed over to the police, he cited pressure from lenders, a private equity partner and alleged harassment by a senior income tax officer for “succumbing to the situation”.
BloombergQuint pieces together the debt picture:
Coffee Day Group
After the IL&FS fiasco, lenders had started seeking consolidation of group debt. That led Coffee Day Enterprises to recognise debt in all indirect subsidiaries and required guarantees by the company and the founder, according to a person aware of the developments. The person didn’t want to be identified given the sensitivity involved. But disclosures show that the group’s debt did rise after that.
Coffee Day Enterprises’ short- and long-term borrowings stood at Rs 4,003.5 crore as of March 2018. It increased to Rs 4,411 crore as of September and jumped to Rs 6,547.4 crore by March this year, according to filings analysed by BloombergQuint. Some of that debt, the filings revealed, was raised by subsidiaries that didn’t have enough revenue stream and, in many cases, no revenue to service them.
Notes by rating agencies also confirm that the debt is backed by corporate guarantees, and in some cases, Siddhartha’s personal guarantees.
Debt With Private Firms
Siddhartha and his wife together owned 36.80 percent in Coffee Day Enterprises. Apart from that, their four investment firms—Devadarshini Info Technologies Pvt. Ltd., Coffee Day Consolidations Pvt. Ltd., Gonibedu Coffee Estates Pvt. Ltd. and Sivan Securities Pvt. Ltd.—held additional 17.13 percent.
The four firms had assets under charge—or secured debt—worth Rs 3,552.57 crore as of December, according to disclosures made to the Ministry of Corporate Affairs.
In fact, Siddhartha last raised Rs 471 crore, mostly through Devadarshini Info, from private funds in September end, documents filed with the ministry show.
Paring Debt
Rising debt burden forced Siddhartha to put his and Coffee Day Group’s 20.15 percent in Mindtree on the block, eventually fetching Rs 3,269 crore.
Based on ratings withdrawal note by Brickworks Ratings due to redemption of non-convertible debentures, a large chunk of the proceeds was used to repay NCD holders. But that didn’t help Siddhartha revoke encumbered shares.
Siddhartha and his investment firms own nearly own 54 percent in Coffee Day Enterprises. About 84 percent of their holding—45.33 percent equity in the company valued at Rs 1,475.17 crore—is still pledged with lenders, according to exchange filings. The pledged equity, in fact, rose in the past one month from 40.82 percent.
Siddhartha had tried to sign a lease rental discounting deal with Blackstone last year for real estate owned by his firms but that fell through over valuations, according to a person familiar with the matter who didn’t want to be identified.
BloombergQuint has emailed queries to Coffee Day Enterprises on debt. The story will be updated once it responds.
Taxman’s Role
The letter cited earlier alleged “harassment from the previous Directorate General of Income Tax in the form of attaching company shares on two separate occasions to block the Mindtree deal”. It also said the department took possession of Coffee Day shares despite revised returns being filed. “This was unfair and has led to a serious liquidity crunch,” the letter said.
The income tax department, while disputing the signature on the letter, said it acted as per the provisions of the law. The investigation against Siddhartha stemmed from the search in a case involving a prominent political leader of Karnataka, the department said in a media statement.
Siddhartha, it said, in a sworn statement admitted to his and Coffee Day Enterprises’ unaccounted income of Rs 362.11 crore and Rs 118.02 crore, respectively. And Mindtree shares owned by him and Coffee Day Group were frozen against the expected tax demand. These were released after he offered shares of Coffee Day Enterprises as security, the statement said.
The department confirmed that Rs 3,000 crore from the Mindtree stake sale was used to cut debt and Rs 46 crore to pay the first instalment of the advance tax against the estimated liability of around Rs 300 crore. And it said the tax liability is even higher and attached shares cover only 40 percent of it.
That still leaves Coffee Day Group and Siddhartha under a combined burden of nearly Rs 7,000 crore.