A deal seems to be brewing over coffee. Singapore state investor Temasek Holdings Pte Ltd., Standard Chartered Private Equity Ltd. (SCPE) and buyout major Kohlberg Kravis Roberts & Co (KKR) are starting the final round of discussions for a $125-million investment in Coffee Day Holdings Company Pvt Ltd, and a clear picture is expected to emerge by end of this quarter.
The three private equity majors have term-sheets signed up with Coffee Day Holdings, which controls all the business ventures of Bangalore-based entrepreneur V G Siddhartha (in pic). Sources involved with the fund-raising process said, the company would attract a valuation of around $500 million post dilution of share capital, translating up to a 24% stake for the investors.
Coffee Day Holdings could also be discussing parallel deals with two of the three funds for raising up to $125 million.
However, a source said, the structuring of the deal depends on final discussions as Siddhartha enjoys the reputation of being a maverick negotiator. Indeed, these funds are hoping to ride on his value-creating potential in the much-chronicled domestic consumption story and ability to scale up businesses at break-neck speed. Café Coffee Day (CCD), India’s largest cafe chain, has been the most aggressive consumer service brand in its expansion plans.
“He is one of the matured Indian entrepreneurs who is poised to grow the business in a big way,” said an investment banking source.
Siddhartha, with his networking in the financial circles, will lead the talks even as Edelweiss Capital Ltd. is the investment bank advising on the fund-raising currently. When contacted, Coffee Day Holdings CFO Monish Gopinath declined to comment on the latest developments.
Coffee Day Holdings is the holding entity of CCD, Coffee Day Hotels and Resorts Pvt Ltd, broking firm Way2Wealth Brokers Pvt Ltd, venture capital firm Global Technology Ventures Ltd, and Tanglin Development Ltd (which is developing technology parks in Bangalore and Mangalore).
The firm has been promoted V. G. Siddhartha, who started his business through coffee trading firm Amalgamated Bean Coffee Trading Company Ltd (ABCTCL). ABCTCL has over 8,000 hectares of plantations and is one of the largest coffee exporters from India today but it is not part of the holding company.
Coffee Day Holdings had earlier raised private equity funding from Sequoia Capital India and mezzanine financing (a hybrid of debt and equity) from Darby Investments (an arm of Franklin Templeton) in its Cafe Coffee Day arm while it raised structured financing from JP Morgan and Deutsche Bank.
Siddhartha recently said, Coffee Day Holdings was planning a capital expansion of Rs 1,700 crore under which it will invest Rs 700 crore in retailing business and another Rs 750 crore in infrastructure and special economic zones (SEZs). CCD is India’s largest coffee café chain, is aiming reach to 1,000 outlets and revenues of Rs 840 crore by the end of this fiscal year. It is planning to expand to Europe, Middle East and South East Asia with a targeted turnover of $1 billion by 2015.
Under infrastructure business, besides SEZs, Coffee Day Holdings is also eyeing hydel power, roads and water treatment. The venture capital arm GTV has investments like Mindtree Consulting, Ittiam, Magnasoft and Global Edge. GTV’s stake in Mindtree, which stands at 6.7% as of September 2009, could alone be valued at Rs 170-175 crore as per current market prices.