Coffee Day probe finds `2,000 crore missing from accounts
An investigation into Coffee Day Enterprises Ltd, initiated by its board after the death of founder V.G. Siddhartha, is likely to conclude that at least Rs 2,000 crore ($270 million) is missing from its accounts, according to people familiar with the matter.
The months-long probe following the suicide of Siddhartha in July examined the financial transactions of the country's largest coffee chain and its dealings with dozens of private companies owned by the entrepreneur. The draft report, running more than a hundred pages, points to billions of rupees that have gone missing, said the people, asking not to be identified because the details aren't public.
The report also highlights hundreds of transactions between the founder's listed and personal businesses that were not conducted at arm's length, the people said. Though the report is in its final stages, the precise details could change before its release, expected as early as this week, they said. The missing funds could total more than Rs 2,500 crore, one person said.
"The investigation report is still a work in progress, and not finalised," a spokesman for the company said. "The board of directors and the company are unaware of its content at this point of time. Hence it would be premature to speculate on the investigation findings."
The priority for management and Siddhartha's family "is to keep the business running in a challenging environment and meet all stakeholder commitments, including 30,000 jobs associated with the group," the spokesman said.
The probe began about a month after the suicide of the 59-year-old founder last year. The company brought in Ashok Kumar Malhotra, a retired senior official from the enforcement agency, to investigate and a senior Supreme Court lawyer is assisting in the case, the company then said.
The Coffee Day empire has been battered since the founder's death. Its shares plummeted about 90 per cent and its market value dropped to about
$80 million. Trading was suspended in February.
Lenders to Coffee day, IndusInd Bank and RBL Bank, tanked on the BSE on Monday, with losses of more than 17 per cent.
The regulators are tracking the situation and may use the company's final report as part of a deeper dive into its internal affairs, the people said. Coffee Day showed about Rs 2,400 crore in cash and cash equivalents on its balance sheet as of March
2019, the most recent figures the company has issued.
After the death of Siddhartha the company faced a severe liquidity crunch and had "zero cash in the bank," according to one of the people. It struggled with day-to-day expenses and paying salaries has been a strain, the person said. The draft report details personal guarantees by Siddhartha for loans taken by Coffee Day, and his unsecured loans at high interest rates from local money lenders, the people said. It also probes Coffee Day's defaults to coffee growers and other vendors, they said.
A related issue is that coffee estates owned by Siddhartha and several employees had been used as collateral for bank loans. The report found that valuations for properties were inflated to get the loans, one person said.
Investigators have examined several theories about what happened to the company's money, including whether Coffee Day was manipulating its finances to show cash and profit and whether Siddhartha was taking cash out of the listed company to pay off a large investor to whom he had guaranteed a return, the person said. From the filings of his listed and private companies, the entrepreneur's loans had totaled more than Rs 10,000 crore, and he had been squeezed by borrowing to repay interest on earlier loans, the person said. The purported suicide note of Siddhartha said he had tried his best but failed as an entrepreneur. "I am solely responsible for all mistakes," the letter read. "Every financial transaction is my responsibility. My team, auditors and senior management are totally unaware of all my transactions. The law should hold me and only me accountable, as I have withheld this information from everybody including my family."
As the report nears release, Coffee Day is finalising a deal with Blackstone Group Inc. for real estate assets. A large tranche of the payment is due in about a week, one person said.