The debt trap purportedly surrounding Coffee Day Enterprises came to light following the unfortunate suicide of VG Siddhartha which again brought issues of transparency and corporate governance into attention.
In an intimation relating to the June quarter, Coffee Day Enterprises (“CDE”) reported a consolidated net profit of Rs 1567 crore. The jump is being attributed to its stake sale in Mindtree for Rs 3270 crore earlier this year.
As per recent reports, the dues of top 5 lenders total to about Rs 1300 crores amongst Axis Bank, Aditya Birla Finance, DEG, ICICI Pru AMC and Tata Capital. These lenders are among the 25 lenders in the array of creditors. These include term loans of about Rs 1,800 crores and debentures of about Rs.700 Crores.
As per available reports, directors of CDE including VG Siddhartha had given personal guarantees worth Rs 1028 crores, part of which concerning the remaining directors would still be available to cover the lenders dues.
The financial crunch has exposed CDE to a continuous exposure of default in payments of its financial dues, which may lead to the Café Coffee Day business assets slipping out of hands of the CDE in case a financial creditor was to trigger an insolvency proceeding.
Further, CDE’s repeat announcement of delay in release of second quarterly results does not spell a boon for shareholders and creditors. With the ongoing investigation by a retired DIG of CBI into the death of VG Siddhartha and into the books of CDE and its subsidiaries, CDE appears to have been caught between the devil and the deep sea.
Many open questions remain to be cleared in the books of CDE including the loan outstanding towards VG Siddhartha in its books that jumped over 100 percent from Rs 217 crore in 2017 to Rs 446 crore in 2018. Even the quality and adequacy of contingencies and provisions under Accounting Standard 37 becomes an important element of verification in the books of CDE and its subsidiaries, which is underway.
Apart from the governance, compliance and ethical issues here, CDE is also in repeat violation of Regulation 33 of the Listing Obligations and Disclosure Requirement Regulations (LODR) , 2015 in view of delays in disclosure of quarterly results to stock exchanges. Sub-Regulation 3 (a) of Regulation 33 provides that a listed entity shall submit quarterly year to date standalone financial results for the quarter within 45 days of end of each quarter.
A breach of this Regulation 33 invites a penalty of Rs 5,000 per day for each day of the delay under SEBI Circular dated 3 May 2018. Additionally, vide another circular of November 2018, SEBI has directed such listed entities to disclose detailed reasons for such delay, which appears to have prompted the intimation of delay by CDE for the second quarterly results.
The corporate governance and legal breaches may also trigger defaults in financial instruments setting off accelerated demands which CDE may find difficult to meet. The stakeholders fate hangs in balance till the investigations are over.
(The writer is the Founder and Managing Partner of Hammurabi & Solomon Partners)
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Updated Date: Nov 15, 2019 12:57:42 IST