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After the founder’s demise, Will Café Coffee “live to see the light of” Day?

What happened after the demise of VG Siddhartha, the founder of Café Coffee Day? The management resolves the crisis by liquefying assets.

In July, VG Siddhartha, the founder of Cafe Coffee Day, went missing only to be discovered dead from river Netravati in Mangaluru on 31st July. In his last writing, he mentioned how he believed he had failed as an entrepreneur. Siddhartha started small and climbed the ladder of success with each passing year. CCD, as a brand, has made a substantial impact on the market of coffee beating global competitors like Starbucks and Costa Coffee.

VG Siddhartha
VG Siddhartha

The financial burden levied on the late founder had driven him to take his own life. However, Siddhartha had repaid all the loan amount of Rs 165 crore to Tata Capital Financial Services in March 2019 and had no outstanding dues to the TCFS. He had taken large sums of money from various banks and financial institutions. In his letter, he quoted,

“I gave up as I could not take any more pressure from one of the private equity partners forcing me to buy back shares, a transaction I had partially completed six months ago by borrowing a large sum of money from a friend.”

The total liability of Rs 5,251 crore as on 31st March 2019 has issued against Coffee Day Enterprises Limited which earlier amounted to Rs 2457.3 crore in FY 2018, according to regulatory filings.

The Initial Talks

CCD has been in talks with Coca-Cola, which has seen a rise and fall in their initial stake buying. Discussions amongst the two have led to the renewal of the deal which would immediately give Coca-Cola ownership to 1,700 outlets across the nation and abroad. The revival took place post the demise of the late founder VG Siddhartha to help the company trim down its set of massive debt. Previously, Siddhartha had held negotiations with the firm for a stake but not a buyout. Siddhartha valued his firm at a whopping Rs 10,000 crore which was then likely turned down.

The Rumours

Various rumors claimed ITC Ltd might also fight for a stake in the parent company Coffee day Enterprises Ltd. Being one of the most valuable cigarette makers in the Asian market, ITC looks to expand its market and look ahead into further investments other than that in their primary selling product, that is, tobacco. The company has been given access to review and analyze the assets and finances of Cafe Coffee Day so that it can ponder on picking stake. Going ahead with the deal would make ITC better equipped at a highly critical market where tobacco products are being issued with high taxes and a variety of strict laws are being formed around smoking in public places. It would help the firm in leaving its high dependability on tobacco products for its significant sales. Though later, Coffee Day Enterprises Limited, claimed that the news regarding ITC buying a stake in the company was “factually incorrect and the company is unaware of the news.” An initial talk session considering the possibility of acquisition of Coffee Day Global Ltd by private equity firm Texas Pacific Group (TPG). The discussions, nevertheless, have been on an investigative stage that does not define the probability of the transaction.

The Liquidification

Sical Logistics, a leading offshore and multimodal logistics services firm, is another enterprise owned by the Coffee Day Group. They have been in exploratory talks with DP World ( Dubai Port World) and few other investors for the monetization of its assets inclusive of Sical Iron Ore Terminals Ltd. Sical holds a net debt of around Rs 1,500 crore. Coffee Day Global aims to cut this debt by half through actions. Dubai Port World is a global port operator with holdings of 78 operating marine and inland terminals backed by over 50 associated businesses in over 40 countries across six continents. Coffee day Enterprise Ltd (CDEL) lately registered into a clear-cut agreement with Blackstone, an American multinational private equity, to liquify Global Village Tech Park for Rs 2,600-3,000 crore. The deal has been expected to be completed by September.

The new top management team of Coffee Day Enterprises has been working day and night to resolve the crisis. CCD has acquired a total debt of Rs 4,970 crore, according to the regulatory filing on 17th August. The major moneylenders included Standard Chartered Bank, Yes Bank, and IDBI Bank. Many private equity funds also have exposure to the coffee chain- KKR &Co, New Silk Route, Affirma Capital, & SSG Asia.

All the required measurements have been taken by Coffee Day Enterprises Ltd to clear out its debt. Coffee Day Enterprises Ltd owns approximately 89.6% of Coffee Day Global. Cafe Day Global alone runs a chain of around 1,750 stores across India, around 600 Value express Kiosks and 60,000 coffee dispensing vending machines that work in the corporate houses and hotels under the name of the brand. It holds a debt of Rs 1,100 crore. Earlier, various investors had queried more of the CCD shares collateralized against their credit. They had urged the company management to bring in more shares with the plunging share prices. Collateral against such bonds was in the extent of 1.25x and 2.75x. However, dropping share prices led the coverslip below the investment value.