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Coffee Day Board has task cut out to dilute debt, gain investor confidence

The company’s stock is at an all-time low, having crashed over 50 per cent from Rs 191 on July 29 to just over Rs 77 on August 8 on BSE

August 08, 2019 / 11:45 AM IST
VG Siddhartha, Founder of Café Coffee Day (Image: Reuters/Shailesh Andrade)

VG Siddhartha, Founder of Café Coffee Day (Image: Reuters/Shailesh Andrade)

 
 
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The board of directors of Coffee Day Enterprises is likely to meet on Thursday, August 8 to discuss the way forward for the company, which is enmeshed in sizeable debt.

After founder and chairman VG Siddhartha’s body was retrieved from Nethravati River on July 31, the board of directors held an emergency meeting the same day and appointed SV Ranganath, retired IAS officer and independent director, as the interim Chairman of the group, and Nitin Bagmane as the interim Chief Operating Officer.

In a statement, the board had said it would prepare a charter of authority vested in the executive committee and approve this in due course.

The board had constituted an executive committee consisting of Ranganath, Bagmane and R Ram Mohan, the Chief Finance Officer (CFO), to explore opportunities to deleverage the Coffee Day group, the statement had said.

Ram Mohan, who is also chairman of SICAL, the logistics firm of the Coffee Day group and a subsidiary of the company, had told media persons: “The board meeting happened, all statutory formalities are getting completed. We are working to continue with the company, and will come out with an action plan."

Not including Siddhartha, the Coffee Day board has four members: Malavika Hegde (Siddhartha's wife), Ranganath, non-executive director and CEO of PE firm KKR India Sanjay Omprakash Nayar, and Independent Director Albert Hieronimus.

A fifth board member, Sulakshana Raghavan, MD of Landor, had resigned on August 2 citing personal reasons, the company said in a BSE filing.

With substantial debt and the circumstances surrounding the owner Siddhartha’s death still shrouded in mystery, the board has a huge responsibility to straighten out the business. In addition to getting the company back on track, the board also has to gain investor trust in deleveraging the business.

In his letter, Siddhartha had apologised to the company and its employees for letting them down, saying he had failed as an entrepreneur. He had also mentioned that he was under pressure from private equity investors and was being harassed by income tax authorities.

According to reports, the company's debt is to the tune of Rs 6,500 crore. This is after accounting for the recent sale of Siddhartha’s share in Mindtree for close to Rs 3,200 crore.

The company’s stock price is at an all-time low. It crashed over 50 per cent in a little over a week from Rs 191 on July 29, and was trading at Rs 77 on BSE at 9.30 am on August 8.

On August 6, the promoter group had pledged more shares to reduce the debt burden. Prior to Siddhartha’s demise, pledged shares accounted for about 75.7 per cent; now it has climbed to over 80 per cent.

A few lenders have invoked pledged shares of the Coffee Day group to recover a part of their debt. In a BSE filing on Wednesday, the company said that IDBI Trusteeship Services on behalf of debenture holders had invoked close to 0.45 per cent of pledged shares. The lenders have the right to dilute 10.55 per cent shares.

According to analysts, investors invoke pledged shares to recover part of their debt when the stock prices crash dramatically and there is only slim possibility of their revival.

Moneycontrol News
first published: Aug 8, 2019 11:43 am

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