Probe into death of Indian founder reveals PE link

Coffee Day owns India's largest network of coffee shops and has private equity backing from the likes of KKR, New Silk Route Partners (NSR) and Standard Chartered Private Equity. It raised INR11.5 billion ($177 million) through a domestic IPO in 2015.

Last year, Siddhartha's body was found in a river near the coastal city of Mengaluru. In a purported suicide letter, he blamed private equity investors, lenders, and India’s tax department for financial harassment. The letter referred to an unnamed PE investor that forced Siddhartha into a share buyback for which he had to borrow a large amount of money from a friend.

The investigation launched led by India’s Central Bureau of Investigation found that a holding company established by Siddhartha borrowed up to INR35.3 billion ($473 million) from Coffee Day Group (CDG), the parent of Coffee Day Enterprises (CDEL), the main coffee chain, according to a filing. Siddhartha's family holds significant shareholdings in both companies with CDG having interests in logistics, resorts, and coffee farms. 

Industry observers speculate Siddhartha had borrowed the sum, and additional amounts from people he knew, to facilitate a share buyback. It is believed the transaction might have been carried out to honor a guaranteed return clause. Such clauses usually form a part of the contract for investment agreements involving fast-growing enterprises in emerging markets.

"We understand that a significant portion of the aforementioned money may have been probably spent to 'buy-back' equity from PE investors, repay loans, and to pay interest apart from funding certain other private investments which are outside the scope of this investigation," the CBI report said.

"We are of the opinion that VGS may have felt aversive behavioral stimulus due to persistent reminders from the PE investors and other lenders. However, such reminders and the follow ups by the PE investors and lenders are not something which is beyond normal industry practices and we believe that PE investors were acting as per accepted legal and business norms."

The company announced that it would look to take steps to retrieve the borrowed amount from Siddhartha's holding company. The founder is said to have obtained the money by offering personal guarantees with assets and shares in other companies acting as collateral.

According to Coffee Day's 2019 annual report, Siddartha held a 32.75% stake in the company. The stock closed at INR20.55 on July 20, the most recent day of trading, having fallen from INR192.55 on the day of Siddhartha's death.

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• Topics
• South Asia
• GPs
• Consumer
• India
• Standard Chartered Private Equity
• KKR
• NSR New Silk Route Partners