As of June, 2019, nearly 76 per cent of VG Siddhartha-led promoter group's 53.93 per cent equity holding in Coffee Day Enterprises had been pledged, according to data shared with stock exchanges.
The sudden disappearance of the founder of the popular coffee retail chain Cafe Coffee Day (CCD), VG Siddhartha, has raised a lot of questions related to the financial visibility of the Coffee Day group. The VG Siddhartha-led Coffee Day Enterprises, which is engaged in a wide range of businesses from coffee chain to logistics, hospitality and financial services, is a publicly-traded firm.
Coffee Day Enterprises (CDEL) promoters, who own 53.93 per cent stake in the company, had pledged 75.70 per cent to lenders as of June 30, 2019.
VG Siddhartha himself holds 32.75 per cent stake directly in CDEL, of which 71.4 per cent were pledged or encumbered as of June 2018. This was not the case in the previous year as the son-in-law of former Karnataka Chief Minister SM Krishna had only pledged 38.66 per cent of his shares in the company.
Deteriorating fundamentals and eroding stock values generally push promoters to raise money for their businesses by pledging a part of their holdings in listed entities as a security. There is no harm in pledging shares. It is just like pledging gold for a loan. But, in case the market conditions are not good, and the slump in stock goes out of hands, lenders exercise their rights to sell shares directly, risking promoter's control over the company.
In the case of Coffee Day Enterprises, the share price of the company has declined 45.97 per cent in the last three month. On Tuesday, on his disappearance, the stock tumbled 20 per cent to hit an all-time low of Rs 154.05 on the BSE, eroding Rs 813.32 crore from its market valuation, after reports emerged that VG Siddhartha, the co-founder of the country's largest coffee chain, has been missing since Monday night. The current market cap of the company is Rs 3,254.33 crore. Promoter group's un-encumbered stake is now worth Rs 426 crore.
Cafe Coffee Day's market-cap stood at Rs 4067.65 crore, on July 29, while it had touched a peak of Rs 6,678 crore on September 19, 2018.
Earlier this year, Siddhartha-led Coffee Day Trading and Coffee Day Enterprises had sold 20.41 per cent stake in IT company Mindtree to engineering and construction major Larsen and Toubro (L&T) at a price of Rs 980 per share aggregating to about Rs 3,269 crore. Following the stake sale, CCD declared in May 2019 it had paid off Rs 2,100 crore received net of taxes and expenses in reducing its debt which stood at Rs 6,547.38 crore as of March 2019.
Edited by Chitranjan Kumar