V G Siddhartha was under heavy debt burden.
As the search for the coffee day founder VG Siddhartha continues, the mystery behind the entrepreneur going missing has become murkier with the emergence of a letter addressed to the company board. Though the genuineness of the letter is yet to be established, Siddhartha has allegedly pointed out the pressure from private equity firms for early exits. Coffee Day Enterprises, the holding firm of Coffee Day, had a total debt of around Rs.6,550 crore as on march 2019 reported. Sources in the known said that debt level of the entity has drastically reduced after Siddhartha’s stake sale in Mindtree, for those who aren’t familiar with what is Mindtree , it’s a Indian multinational information and outsourcing company which is owned by Larsen and Toubro. In March this year, he had sold his entire 20.32 percent stake in Bangaluru headquartered IT Services firm to engineering major, L&T for around Rs.3,200 crore, which had been utilised to pair some debt from Coffee Day Enterprise’s balance sheet. Industry experts said that the Mindtree stake sale to L&T despite of opposition from it’s founders could be linked to the desperateness of Siddhartha to reduce the company’s debt, which was taking a toll on the working capital need of the firm due to high-interest outgo. Recently, news reports also suggested that Coffee Day Group was in talks with global beverage maker Coca-Cola for selling a slice of it’s equity at an enterprise valuation of around Rs.10,000 crores. Other than coffee retail chain and his investment in tech firms, the Coffee Day Group has diversified in it’s bid to emerge as a business conglomerate. The group did well into real estate through it’s wholly owned subsidiary Tanglin, which develops technology parks and special economic zones for IT Industries. It’s logistics arm, Sical, provides end-to-end solution in port handling, road and rail transport areas. The group has also ventured into hospitality through Coffee Day Hotels & Resorts. Way2Wealth is a leading financial service provider from Coffee Day’s stable. Though, the total enterprise value of the group is yet to ascertained as most of them are privately held but some reports had suggested that private equity major Blackstone was in talks to buy majority stake in Siddhartha’s real estate venture Tanglin Developments for around Rs.2,800 crore. Tanglin has a tech park – ‘Global Village’ , which is 4 million-sq ft tenanted office space located in 120 acre campus in Bangaluru, and counts Accenture and Mphasis among it’s tenants.
Cafe Coffee Day(CCD), set up in August 1996, has grown to include 1,750 stores across India with 60,000 vending machines as of now. It also has outlet’s across Europe as well as in Malaysia, Nepal and Egypt. The group’s coffee business, which includes some exports of the bean, reported a revenue of Rs. 1,777 crores in FY18 and Rs. 1,814 crores in FY19.
What actually went wrong?
With the rising competition from new retail chains and capital incentive nature of some of his businesses, Siddhartha was under pressure. But, the group has better financial health than many other debt laden conglomerates. VG Siddhartha’s death is an eye-opener on how weak an entrepreneur is. In the typewritten note released by the news agency ANI, Siddhartha appeared to apologize for “failing to create the right profitable business model”. He said pressure from his private equity partners and other lenders, as well as , harassment from the income tax department, had become unbearable. Nobody knows for certain that who were those partners or partner Siddhartha had in mind, or why they were allegedly”forcing” him to buy back shares. But, one thing is for sure that happened is the income tax department had been pushing him; with typically bad taste , the taxman attempted to rebut Siddhartha’s accusation of harassment by saying that they were only “protecting the interest of revenue” by blocking the entrepreneur’s access to his Mindtree shares at a time when he desperately needed liquidity to reduce his debt. And yet Siddhartha wrote in his note: “My intention was never to cheat or mislead anyone, I have failed as an entrepreneur.” The tragedy is that he needed to emphasize that distinction. Businessman whose bets have gone bad must fear arrest as well as bankruptcy. In particular, as in many other countries, tax raids can be used as bludgeons against anyone politically exposed, even legitimate businessman.
The income tax department operates through fear.
People in business never know when inspectors will turn up or what they will do. In this case, Siddhartha’s troubles may not have been unrelated to the fact that he was the son-in-law of a politician once prominent in the opposition Indian National Congress party. The income tax department raided the homes and offices of another high profile Congress politician in 2017, at precisely the time he was attempting to preserve an opposition government in Siddhartha’s home state of Karnataka. Tax officials now admit that their allegations against Siddhartha arose from these raids.
The above detailed case study of VG Siddhartha’s unwanted demise is a lesson for us, for the businessman and the emerging entrepreneur not to take their liabilities over them because they also have a family , a group of well wishers who get into more pain than the person who left the world. Ups and Downs are there in everybody’s life but it’s our responsibility to emerge victoriously and I would request the government, the stakeholders and the money lenders to work together as a team rather then always running behind the borrowers life for the clearance of the debt to bring out the perfect resilience.
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