VG Siddhartha death: Rs 2,700 cr hole revealed in Coffee Day’s books in probe report

VG Siddhartha’s private company owes Rs 3,535 crore to Coffee Day enterprises, of which Rs 2,693 crore still needs to be addressed, the report said.
VG Siddhartha
VG Siddhartha

Nearly a year after the death of Coffee Day head VG Siddhartha, an investigation into the letter left behind by him and a scrutiny of Coffee Day’s accounts has revealed a gap of Rs 2,693 crore in the balance sheet of Coffee Day Enterprises.

The investigation report also revealed that Mysore Amalgamated Coffee Estates Limited (MACEL) owes Rs 3,535 crore to the subsidiaries of Coffee Day Enterprises as on July 31, 2019. However, according to the Consolidated Audited Financial Statements of the company, MACEL owed only Rs 842 crore to subsidiaries as on March 31, 2019, thus revealing a gap of Rs 2,693 crore that needs to be addressed. 

MACEL is a private coffee trading firm that was owned by Siddhartha and his father. According to Coffee Day’s Board, MACEL had a continuing business relationship with subsidiaries of Coffee Day, where it was paid advances by these subsidiaries. Coffee Day has 49 subsidiaries. 

The report suggests that the Rs 2,693 crore that needs to be addressed may have been used by Siddhartha and transferred to his company, possibly to pay back PE investors, repay loans or even fund his other private investments. This, however, was outside the scope of the investigation and hence the amount couldn’t be accounted for, the report said. 

On August 30, 2019, the board of Coffee Day had appointed former Deputy Inspector General of CBI Ashok Kumar Malhotra  to investigate the circumstances leading to the statements made in the letter by Siddhartha and to scrutinize the books of accounts of Coffee Day and its subsidiaries.

Clean chit to PE investors

In his letter, Siddhartha had mentioned that a private equity player was forcing him to buyback shares, a part of which he had completed by borrowing money from a friend.

“I have failed to create the right profitable business model despite my best efforts,” Siddhartha had said in his letter. This, the investigation report said, it broadly agreed with “as it was created largely out of high cost borrowings and PE investments carrying a high rate of returns.”

The report, however, stated that while Siddhartha may have felt pressured by persistent reminders from private equity investors and other lenders, such reminders and follow ups are “not something which is beyond normal industry practices and we believe that PE Investors werc acting as per accepted legal and business norms.”

Clean chit to I-T department 

Siddhartha’s letter in July 2019 also spoke about harassment from the previous Director-General of Income Tax. To this, the investigation report states that they have not been provided with any documentary evidence that could show advertent or inadvertent harassment from the I-T department. 

However, the report states that a probe into the financial records of the companies during the relevant period did suggest that there was a serious liquidity crunch, which may have arisen due to the attachment of Mindtree shares by the Income Tax Department. This probably restricted Siddhartha from being able to borrow further, the report noted.

As per Siddhartha’s statement that he is solely responsible for his mistakes and no one else was aware including the senior management, auditors and his team, the investigation report showed that based on discussion, mails and communiques, they were inclined to believe this.

Current situation

In a disclosure to the stock exchanges, the board of Coffee Day said that the company’s subsidiaries are taking steps to recover dues from MACEL.

“The board authorized the Chairman to appoint an ex-judge of the Hon.Supreme Courtor the Hon. High Court, or any other person of eminence, to suggest and oversee actions for recovery of the dues from MACEL and to help on any other associated matters,” the company said. 

The company also said that the executive committee that was formed after the death of Siddhartha that also included his wife Malavika Hegde, has been able to pare down the debt of the company from approximately Rs 7,200 crore as on March 31, 2019 to Rs 4,000 crore till date. The present debt of the group is approximately around Rs 3,200 crore, the board said.

The subsidiaries of Coffee Day have been selling off assets to pare down debt. In September 2019, the Blackstone Group and Salarpuria Sattva group purchased the Global Village Tech Park in Bengaluru from Coffee Day’s subsidiary Tanglin Development at an enterprise value of Rs 2,700 crore.

The company added that the disinvestment process in the group continues and that the board is confident of coming up with an effective solution to all stakeholders.

“In spite of COVID-19 and lockdown since March 24, 2020, which is affecting our revenues severely, many companies of the group continue to be a going concern. We are also confident, with the untiring efforts of Board of Directors, Executive Committee and Senior Management - the group will bounce back past glory,” the company added in the regulatory filing.

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