Coffee Day asks E&Y to inspect books and Siddhartha letter; stock locked in lower circuit for 9th day

Shares of Coffee Day Enterprises were locked in lower circuit for the ninth session in a row on August 9, as concerns over corporate governance and rising debts mount following the death of founder VG Siddhartha.

The stock has lost 62 percent of its value since July 29 (Rs 192 level). It was down 5 percent at Rs 73.35 with pending sell orders on August 9.

The Coffee Day Enterprises board on August 8 appointed Ernst & Young (EY) to inspect its books and also look into the circumstances outlined by Siddhartha, who founded Café Coffee Day chain, in his purported suicide note.

Siddhartha’s body was pulled out of the Netravathi River in Karnataka on July 31, 36 hours after he went missing. A note purportedly written by him to the board and the staff of the company said he had “failed as an entrepreneur”. The note, written two days before he went missing, talked about pressure from lenders and an investor. It also alleged harassment at the hands of the income tax department.

Cafe Coffee Day, India’s largest coffee chain, is among the several businesses owned by Coffee Day Enterprises.

The board also appointed Malavika Hegde as an additional member of the executive committee formed on July 31.

Siddhartha’s death has raised questions over the company, which, according to reports, has a debt of about Rs 11,000 crore,

The shares pledged by promoter group increased to over 80 percent recently from 75.7 percent till July 29. Some of the investors have invoked pledged shares to recover a part of their debt.

The focus of the board would be to deleverage Coffee Day business to dilute debt.

The board also decided, on August 8, to sell the group’s 90-acre technology park in Bengaluru to reduce the debt burden.

New York-based private equity giant Blackstone Group is one of the top contenders to buy the Global Village Park, owned by Tanglin Developments Ltd, a unit of CDEL, two people with direct knowledge of board discussions said.

Siddhartha was in talks with Blackstone to sell the real estate property in Bengaluru. He was also holding discussion with Coca-Cola for selling a part of the Café Coffee Day business, whose valuation was estimated at Rs 8,000-10,000 crore.

According to reports, the talks with Blackstone have resumed, with the property valued at Rs 3,000 crore. There is no clarity on the status of talks with Coca-Cola.

As on March 2019, CDEL, whose main subsidiaries include Coffee Day Global Ltd (coffee business), Sical Logistics Ltd (integrated logistics), Tanglin Developments Ltd (realty), Way2Wealth (financial services) and Coffee Day Hotels and Resorts Ltd (hospitality), had a debt obligations of at least Rs 7,653 crore.

Consolidated borrowings of all CDEL subsidiaries together — bank loans and NCDs– worked out to Rs 6,547.38 crore as on March 31, of which short-term debt obligations were at Rs 1,106 crore.

On a standalone basis, CDEL’s borrowings were only around Rs 350 crore, while its subsidiary Coffee Day Global alone had debt obligations of Rs 879.67 crore as on March 31, according to the balance sheet filed by the company. CDEL’s total assets were worth around Rs 11,259 crore.

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