Why the brew turned bitter for CCD founder VG Siddhartha

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On Wednesday, the coffee square on Vittal Mallya road in Bengaluru where the headquarters of Café Coffee Day (CCD) stands wore a desolate look. It was a quiet day, interspersed by the occasional arrival or exit of grim-faced senior executives. Things have been rather tense ever since news emerged early on Tuesday morning that CCD’s founder Chairman V G Siddhartha was missing, and may have killed himself unable to bear the financial pressure he was under. His body washed up on the shores of Nethravati river early on Wednesday morning.

How did things come to such a sorry pass for a man labelled “India’s coffee king?” While there are many explanations proffered, a cursory reading of the group’s holdings indicate that while assets exceed liabilities, the issue seems to be an old one which has plagued ambitious entrepreneurs— excessive borrowing.

As of 31 March 2019 Coffee Day Enterprises Ltd (the holding company) had a debt of ~ 6547.38 crore. It wasn’t clear whether this includes ~ 2100 crore the company would have received net of taxes and expense after it sold the 20.41% stake it held in MindTree Consulting to L & T for~3269 crore.

Company officials did not respond to a request for comment. According to publicly available data as of June 2019, 75.70% of the promoter group’s holdings in Coffee Day Enterprises were pledged to lenders. Share prices of most companies have fallen in the past months and Coffee Day’s were no exception. In the last three months alone, the company’s shares have fallen nearly 46%.

Trading in the scrip was halted on Wednesday after it was breached the lower circuit after plunging 20% on Tuesday. A former senior associate of Siddhartha who is now an investor in startups claimed that the latter was looking to raise funds, but with little success. With funds failing to materalise and unable to liqudate the vast real estate holdings of the group, Siddhartha was staring down the barrel.

In the 27th July letter addressed to the board, in which Siddhartha indicated that he was giving up, he provided an estimate of what he thought the various group businesses are worth. By his own assessment the group’s assets seem to be in the range of ~15,000 crores and liabilities, less than half of that.

However, unable to service the growing mountain of debt and to liquidate his assets in a tough market, he seems to have decided to end it all. On Wednesday, the board in a notice to the stock exchanges announced the appointment of S V Ranganath as the interim chairman of the board and Nitin Bagmane as the COO.

Ranganath is a retired senior IAS officer, a former chief secretary of Karnataka who is known to be close to Siddhartha’s father-in-law, former chief minister S M Krishna. He also was the head of Coffee Board for a brief while in the late 1990s. Ranganath was an independent director on the board of the company.

Coffee Day Enterprise Ltd also said that it had taken cognizance of the statements in the purported letter from Siddhartha relating to financial transactions outside the knowledge of the senior management, auditors and the board. It also said the authenticity of the letter is unverified and it is unclear whether these statements pertained to the company or the personal holdings of Siddhartha. The board also indicated that it has the backing of the family of Siddhartha including his wife Malavika Hegde.

Naresh Malhotra a former CEO of Cafe Coffee Day expressed shock at the developments “He was a fine entrepreneur. Very rooted and built a globally known retail brand. I am sure the board will ensure that the legacy of Siddhartha is protected and strengthened.”