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Coffee Day probe says $360 mn missing, gives PE investors a clean chit
Photo Credit: VCCircle

Café Coffee Day’s late founder VG Siddhartha borrowed a large amount of money in his personal capacity from the coffee chain’s parent company to likely repay private equity investors and other creditors, a probe has found.

The investigation report comes almost a year after Siddhartha died, purportedly by suicide, and left a letter where he said he was under pressure from a PE investor, lenders and the tax department. He didn’t identify the PE firm or the lenders.

After his death the board of Coffee Day Enterprises Ltd, the coffee chain’s parent, had appointed former Central Bureau of Investigation official Ashok Kumar Malhotra to investigate the letter’s contents and scrutinize the books of the company and its units.

The investigation, conducted with help from law firm Agastya Legal, found a missing sum of Rs 2,693 crore ($360 million) that Siddhartha owed Coffee Day, according to a synopsis of the report released on Friday.

The report said that Mysore Amalgamated Coffee Estates Ltd, a personal business entity of Siddhartha’s, had a “continuing business relationship” with Coffee Day’s subsidiaries and received advances from these units.

Mysore Amalgamated owed Coffee Day units Rs 842 crore as on March 2019. This amount increased to Rs 3,535 crore as on July 2019, the month Siddhartha died.

This means, the report said, “a sum of Rs 2,693 crore is the incremental outstanding and needs to be addressed”.

The report said that Siddhartha may have used a “significant portion” of this money to buy out his PE backers, repay loans, pay interest and fund certain other private investments.

But the report declined to apportion any blame to the investors. It said that Siddhartha may have “felt aversive behavioural stimulus” due to persistent reminders from PE investors and lenders.

“However, such reminders and follow-ups by PE investors and lenders are not something which is beyond normal industry practices and we believe the PE investors were acting as per accepted legal and business norms,” it said.

Coffee Day is backed by private equity firms KKR, Rivendell PE (formerly New Silk Route) and Affirma Capital, which manages the portfolio of Standard Chartered PE. KKR owned a 6.07% stake in Coffee Day, Rivendell 10.61% and Affirma about 5.67% at the end of June, stock-exchange data show.

Also read:

A tale of Café Coffee Day parent’s PE backers and another that lent to VG Siddhartha

Explained: Why PE firms do debt deals and what leverage they really have over founders

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