Spilling The Beans: How Murky Was Cafe Coffee Day Founder VG Siddartha's Death

When he started Air Deccan in 2003, Captain G.R. Gopinath offered a novel deal to V.G. Siddhartha, late founder of the Café Coffee Day (CCD) Group. How about in-flight catering (snacks and beverages) with no rent or other bills, and air-hostesses doubling up as CCD바카라�s salesgirls? Gopinath바카라�s idea was of stores in the air for a 30 per cent commission. 바카라�He (Siddhartha ) sealed the deal in less than an hour,바카라� Gopinath reminis­ces about an entrepreneur he admired. That, in essence, defined the CCD founder바카라�s business acumen. As Gopinath puts it, just instincts and drive. And loads of ambition.

Despite being former Karnataka CM S.M. Krishna바카라�s son-in-law, Siddhartha was regarded as a self-made businessman. In 25 years, he ­became the country바카라�s largest coffee exporter, built a popular retail brand with 1,750 CCD outlets, and invested profitably in several tech firms. Despite criticism that banks fav­oured his group, he was respected for his passion, success and commitment. He had everything going for him. That바카라�s why his friends and colleagues were traumatised by his untim­ely death. Siddhartha went missing on July 29 and his body was found two days later by three fishermen at the Hoige Bazaar beach in Mangalore. It was billed as a possible suicide.

Of course, there were murmurs in the market about the group바카라�s huge debts바카라�the consolidated balancesheet (2017-18) puts the liabilities at alm­ost Rs 6,000 crore. But, until a few days ­before his death, the situation seemed under control. He had just sold the group바카라�s stake in MindTree, a tech firm, and made a net profit (minus expenses and taxes) of Rs 2,100 crore. There were media reports of other potential deals to offload portions of the stakes in real ­estate and coffee. In retrospect, it is evident he was under tremendous pressure. In a typed ­letter, whose authenticity is in doubt, Siddhartha opened out his heart.

He listed how he was under pressure from a private equity investor to buy back its shares, and from other lenders who wanted their money back. There was harassment from the income tax (I-T) department, which attached his shares, and blocked and delayed the MindTree transaction, leading to a 바카라�serious ­liquidity crunch바카라�, and he also confessed that his colleagues and family were 바카라�totally unaware of all my transactions바카라�.

This last comment, reports about the state of the businesses, and I-T officials바카라� contention that the signature on the letter didn바카라�t match with the one in the annual reports forced the board of the holding company, Coffee Day Enterprises, to take prompt action. It appo­inted Ernst & Young 바카라�to investigate into the circumstances leading to (his) statements바카라�, and 바카라�to scrutinise the books of accounts of the company and its subsidiaries바카라�.

The I-T department says it probed Siddhartha and CCD Group because of the leads it got from its raids on Congress leader D.K. Shivakumar. Its press rele­ase claimed that the CCD founder admitted to an unaccounted income of Rs 480 crore in a sworn statement. However, when the I-T return was filed, he did not 바카라�offer the above undisclosed inc­ome바카라�. Hence, the move to ­provisionally attach his shares was to protect the government바카라�s revenue interests. A look at the balancesheets of the holding company, and its 51 subsidiaries, associate companies and joint ventures, reveals that the group was in a ­financial mess. At a consolidated level, it earned a net profit of Rs 148 crore on revenues of Rs 3,851 crore, or a margin of just under 4 per cent. Of the 52 companies, 13 incur­red losses, and there were no figures for another 10 firms. May be the latter were non-operational. In fact, the holding company incurred a loss of Rs 61.5 crore on a turnover of Rs 142 crore in 2017-18. Of the 29 other companies, 23 earned profits that were less than Rs 10 crore each.

According to media reports, profits from the MindTree deal were used to bring down the loan amount to Rs 4,970 crore by July 2019. In a rec­ent regulatory filing, the holding company has appealed to lenders and creditors for more time to honour its repayments. The consolidated loan, it said in a recent regulatory filing, would come down to Rs 2,400 crore if it sucessfully divests its stake in Global Village Tech Park. Clearly, the MindTree profits were used to pare down the loans. In a separate filing, a listed subsidiary, Sical Logistics, asked for a one-time moratorium of three months to service its debt of Rs 1,488 crore in July 2019. This is surprising because, as Anant Koppar, founder of Kshema Technologies puts it, 바카라�with finance, Siddhartha was brilliant바카라�. He adds, 바카라�It wasn바카라�t the money. Siddhartha would say that once you earn enough, you go on because of your passion, rather than anything else.바카라� In 1996, Kshema Technologies was the first technology firm that Siddhartha invested in. Koppar recalls that the company바카라�s first press conference to ann­ounce quarterly results was held in a CCD outlet on Bangalore바카라�s Brigade Road, though such conferences were normally held in five-star hotels.

The story of Siddhartha바카라�s baptism in business as a stockbroker in Mumbai in the early 1980s became a legend among youngsters in Karna­taka바카라�s coffee-growing Malnad region. The only son of a wealthy, landed family, he took Rs 5 lakh from his father, and went on to build a coffee emp­ire with over 12,000 acres of plantations. Since the 1990s, when coffee marketing was ope­ned for private initiatives, the Malnad coffee-­growers came to depend on CCD, a large buyer.

Many remember Siddhartha as soft-­spoken and friendly, one who made it a point to att­end local weddings and social events. He was also media-shy, although the media loved him and he was well-connected, both in business and politics. This led to suggestions of crony capitalism. His father-in-law Krishna바카라�s abrupt switchover to the BJP from the Congress two years ago was seen as a move that would benefit Siddhartha바카라�s businesses. 바카라�There are many uncharitable stories going around that he built his empire due to political patronage,바카라� wrote Ashok Soota, former Mindtree chairman in a fin­ancial newspaper last week. 바카라�CCD was built outlet by outlet, and person by person. It also required a savvy businessman.바카라� Hence, his death was shocking, to say the least.

Were his problems insurmountable? The ans­wer is elusive until a complete picture of his ­fin­ancial situation is revealed. But the problems were there, both with debt and tax. 바카라�Most of the assets were illiquid, which couldn바카라�t have been sold immediately,바카라� suggests one financial expert. 바카라�You had the whole credit cycle tightening, and that바카라�s when this came to the fore.바카라�

Siddhartha바카라�s friends believe he couldn바카라�t bear the burden of not being able to honour the loan commitments. He belonged to the elite of the Gowda community, and couldn바카라�t possibly face the new reality, where the lenders and investors were more in control. 바카라�Our breakout entrepreneur was Siddhartha,바카라� says Congress Rajya Sabha member M.V. Rajeev Gowda. 바카라�No one has come anywhere close.바카라�

By Ajay Sukumaran in Bangalore