Siddhartha's letter could be referring to a debt deal, say PE insiders

Café Coffee Day founder V G Siddhartha could be referring to a debt deal, say private equity (PE) industry insiders, when he wrote in a letter that he was under pressure from a PE firm to buy back shares. 

It could be a mezzanine or structured debt deal, where non-payment of principal can trigger other covenants such as a put option, requiring the borrower to buy back preference shares or debentures, say insiders. The lender could be the credit arm of a large private equity firm. 

CCD has three PE investors — KKR India, Rivendell PE (formerly New Silk Route) and Affirma Capital, which manages the portfolio of Standard Chartered PE — who tried to say they are not responsible for the unfortunate event. “We have never discussed a buyback and have always been very supportive of the business,” said an investor.

These investors together held 22.35 per cent stake in CCD valued at Rs 724 crore at the end of April-June quarter. 

“…We are deeply saddened by the developments and our thoughts are with his family at this time. We believe in VG Siddhartha and had invested in the company about nine years ago. We sold approximately 4.25 per cent (of our total holding of approximately 10.3 per cent in the company) in February 2018 on the stock exchange and have not sold any shares before or after," KKR said in an emailed statement.

In a letter left by Siddhartha who went missing on Monday, he wrote ''I gave up as I could not take any more pressure from one of the private equity partners forcing me to buy back shares, a transaction I had partially completed six months ago by borrowing a large sum of money from a friend.”