Two weeks after the death of Cafe Coffee Day chain founder VG Siddhartha, the group’s listed entity Coffee Day Enterprises (CDEL) has signed a non-binding agreement with US-based private equity giant Blackstone for its real estate property — Global Tech Village — in a deal valued at Rs 2,600-3,000 crore.
The sale of the 90-acre technology park in Bengaluru will help the company reduce its debt burden. “The board of directors today approved the disinvestment of Global Village Tech Park in its subsidiary, Tanglin Developments, in favour of Blackstone,” the company said in an exchange filing.
The transaction is valued around Rs 2,600-3,000 crore and the company has entered into a non-binding letter of intent, it said. The deal is subject to completion of Blackstone’s due diligence, documentation and receipt of requisite regulatory approvals, which is expected in the next 30-45 days. The park is spread over 120 acres with a total built-up area of 3.3 million sq ft and equipped with all modern facilities and greenery.
The board has also approved disinvestment in its step-down subsidiary, AlphaGrep Securities Pvt, part of its wealth management subsidiary Way2Wealth, in favour of Illuminati Software Pvt for around Rs 28 crore. These transactions will significantly help in deleveraging the Coffee Day group, and ensure smooth operations while safeguarding the interests of all stakeholders, including investors, lenders, employees and customers, it said.
Blackstone’s India investment is currently around $6 billion involving over 34 transactions since it started investing in the domestic market in 2011. Coffee Day shares plunged 4.95 per cent to Rs 66.25 on the BSE on Wednesday. The company’s share price has fallen nearly 65.4 per cent in 11 consecutive sessions, following the sudden death of Siddhartha on July 29. The market capitalisation of the company fell from around Rs 7,000 crore from the peak levels to Rs 1,399 crore.
According to rating firm ICRA, the standalone entity has modest scale of operations with revenues mainly comprising of income from coffee trading, hospitality revenue and other revenue apart from dividends and interest income from group companies, which accounted for 45 per cent of sales during the last two years. The profit margin has been constrained on account of high interest burden, since the company has availed high debt compared to its scale of operations to provide support to investee companies, it said.
The financial profile of the consolidated entity is characterised by leveraged capital structure and stretched coverage indicators due to debt funded capex incurred under coffee, logistics and real estate businesses. With high capex plans in the medium term, which will be partly debt funded, the capital structure and coverage indicators are expected to remain under pressure. The consolidated entity had gearing of 1.7 times as on March 31, 2018 and has steadily increased from 1.3 times as on March 31, 2016.
Both standalone and consolidated entity have high repayment obligations in the near to medium term and are exposed to refinancing risk. The risk is however partly mitigated by track record of successful refinancing in the last few years. The debt availed by the company are typically backed by personal guarantee from promoters and pledge of shares of listed and unlisted group entities and associate companies.