Companies

Stock’s poor outing pushed CCD’s chief into liquidity trap

K Giriprakash Bengaluru | Updated on March 16, 2020 Published on March 16, 2020

Company’s debt burden was as high as ₹10,000 cr

The sluggish performance of Coffee Day Enterprises Ltd (CDEL) on the stock market in the face of huge borrowings significantly impacted late founder VG Siddhartha’s refinancing abilities, pushing him into a liquidity trap, a probe report likely to be tabled before the company’s board by early April is expected to reveal.

An investigation report commissioned by the CDEL board into the alleged suicide of Siddhartha is expected to detail the liquidity pressures faced by the late founder amid rising debt and slowing economy. CDEL shares traded below the issue price for an extended period before collapsing after the founder’s untimely demise. CDEL runs a chain of Cafe Coffee Day restaurants.

Prepared by former CBI top official Ashok Kumar Malhotra, the report could be made made public latest by early April. The report is also expected to give details of how funds worth up to ₹2,500 crore went missing from the account books.

Sources briefed on the matter said there were, perhaps, related-party transactions between CDEL and some of the private entities of Sidhhartha over the last few years. Several of these money trails were aimed at servicing costly debts raised for expansion or buying back some early investors.

The overall debt, including personal commitments, had ballooned to almost ₹10,000 crore in recent years. This resulted in interest payout of nearly ₹750 crore annually.

Sidhartha is believed to have bought back some of the early investors, which included marquee venture capitalists, providing them hefty returns of 20- 22 per cent in dollar terms. Sources added that certain loans were refinanced with the promise of huge returns on the condition that the lenders would top up the loan with additional funds. “The entire structure of the borrowings came crumbling down as fresh funds to finance the older ones couldn’t be raised on time,” a source close to the company said.

Business is key priority

Meanwhile, a company spokesperson clarified that the promoter family was not involved in the business at the time of demise of VG Siddhartha. “They stepped in to assume responsibility of the large and diversified business on the fifth day of the tragedy, while still in a state of shock.

“The promoter family and management are fully cooperating with the investigation but oblivious to its outcome as their priority is to keep the business running in a challenging environment and meet all stakeholder commitments, including 30,000 jobs associated with the group.

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Published on March 16, 2020
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