Cafe Coffee Day, V G Siddhartha lenders staring at legal quagmire

Lenders are staring at a legal labyrinth as loans to Coffee Day Enterprises group companies and V G Siddhartha were backed by the personal guarantee of the late promoter and some of these loans were raised by giving real estate assets as collateral. 

According to FY18 annual reports of Coffee Day Enterprises and its listed subsidiary, Sical Logistics, almost all top banks, non-banking financial companies (NBFCs) and private equities (PEs) had debt/equity exposure to both the entities with real estate as collateral.  In his last note, Siddhartha had listed a series of real estate which, he said, could be sold off to repay banks. But bankers say it could be a nightmare to enforce the collateral — considering land prices have hit a new low and there are no takers for large parcels of land.

Besides, with the almost 40 per cent fall in the share price of Coffee Day Enterprises and Sical since Tuesday, banks are looking at a significant haircut on their exposure worth Rs 6,500 crore to the group firms. Documents show that three PE funds led by KKR, Standard Chartered PE and NLS Mauritius made investments in Coffee Day Enterprises in 2010 and made partial exits since its IPO in November 2015. 

In his note, Siddhartha mentioned pressure from a PE without elaborating. A banker said several PEs signed quasi debt agreements with Indian promoters with mandatory IRRs (internal rate of return) of 15 per cent in dollars. As rupee fell versus the dollar, liabilities of Indian promoters rose. “Many of these debt deals were signed to avoid RBI’s ECB (external commercial borrowings) guidelines,” said a banker without naming Coffee Day Enterprises.

In February last year, KKR sold 4.25 per cent of its total stake of 10.3 per cent. Similarly, StanChart PE holds 5.7 per cent stake and sold about 1 per cent in April 2018. In 2015, the compulsorily convertible preference shares and compulsorily convertible debentures issued to StanChart PE, KKR Mauritius and Arduino Holdings were converted into equity shares just before the IPO. According to the subscription agreement, the CCD holder was not entitled to receive any interest, however, it provided that if Coffee Day Enterprises declared any dividend, the CCD holder was entitled to receive the economic equivalent of the amount of dividend on a fully diluted basis by way of interest.

Coffee Day Enterprises’ consolidated net debt as on March was Rs 4,200 crore, while V G Siddhartha’s personal debt is estimated at around Rs 3,500 crore as on December, MCA filings show.