Updated: August 4, 2019 6:51:26 pm
In Karnataka’s coffee-growing hill district of Chikamagalur, V G Siddhartha, entrepreneur and founder of the Cafe Coffee Day chain dotting urban India, is considered a demi god. A vocational training school Siddhartha established in Chikamagalur in 2004 has provided over 10,000 youths from the region — 35% of them girls — free education in computers, English language and soft skills, helping them find jobs in the services industry.
A few years ago Siddhartha told a students’ summit at IIT Kanpur that a member from the first batch of the school was a manager at a restaurant in New York. “If not for the vocational school, our youths would not get a job paying more than Rs 3,000-Rs 4,000 per month,” he said.
By investing roughly Rs 50,000 per member, for a six-month training, the school also ensured a constant supply of workers for the CCD chain. “In Chikamagalur, he is considered god. Even elderly people would call him to settle disputes,” said a relative/advisor of the businessman, whose death on July 29 in a suspected case of suicide sent shockwaves among the financial community and set off allegations of tax terrorism.
A soft-spoken, reclusive individual who shunned public appearances till they became necessary for his Coffee Day brand, 60-year-old Siddhartha had broken away from the family tradition of coffee-growing early on, at the age of 21. The story in Chikamagalur is that Siddhartha’s father Gangaiah Hegde was reluctant to let his son go his own way, and that it was S M Krishna, a Union minister at the time, a family friend and a fellow Vokkaliga, who brought him around. In 1988, Siddhartha got married to Krishna’s older daughter Malavika. They have two sons, Amartya, who has a business degree from a foreign university and was being groomed to take over from Siddhartha, and Ishaan, a student.
In a talk in 2016, Siddhartha recounted this early part of his life. “My family has been growing coffee since 1870, we had around 300 acres. I was the only son… My father had about Rs 15 to Rs 20 lakh income every year from land. I wanted to do something on my own… He gave me Rs 7.5 lakh. He told me that by chance if you lose the money, come back and work on the estate. If you succeed, all the best to you.” As Siddhartha’s funeral was being held on July 31, his ailing 95-year-old father lay unwell in a Mysuru hospital.
Too big too fast
Even though Siddhartha was ahead of his times when he decided to establish the Coffee Day chain of cafes over two decades ago, his audacious expansion drive across diverse businesses on the back of aggressive borrowing from banks, MFs, NBFCs, PEs and even friends may have tripped him. Also, his political connections, which once provided him strength, became his Achilles' heel when power equations changed.
For nearly a decade after leaving home, Siddhartha worked as a stock-broker in Mumbai and Bengaluru. He held a job as a research analyst for Morgan Stanley (then J M Financials) in Mumbai, and in the 1980s started a brokerage firm in Bengaluru with part of the money given by his father. “I made a lot of money between 1985 and 1992. The markets were so inefficient that inter-market arbitration allowed me to make Rs 1 lakh every day,” Siddhartha said a couple of years ago.
Rise of the coffee king
Siddhartha used these gains to gradually buy up coffee land in his home district. “By 1992-93, I had almost 5,000-6,000 acres. The first property I bought was for Rs 10,000 per acre. Somebody with equity trading and research knowledge can finance deals much faster than guys on the street,” he said in his 2016 talk. In those early days, Siddhartha’s firm was called Amalgamated Bean Coffee (ABC) Trading Company, which later became Coffee Day Global.
When Manmohan Singh, as finance minister, unshackled coffee-growers and traders from selling only to the state-run Coffee Board in 1993 as part of liberalisation, Siddhartha hit pay dirt. “I was India’s biggest coffee trader. By 1995, I became India’s biggest commodity trader. There was a frost (affecting the coffee yield) and coffee prices went up three times. I honoured all my commitments and became a darling of international buyers and traders,” he said.
Siddhartha had by now crores of trading profit and two factories, and bought six more. He bought sick units, German machines. He also realised that if it was this easy to build India’s largest commodity/coffee trade house, “the big traders of the world can also throw me out in no time”. Operating only as a coffee trader would not allow him to enjoy market leadership for too long.
Around this time, Siddhartha had a chance encounter with the owner of German coffee retail chain Tchibo — the second-largest coffee chain in Europe — who had built a business worth USD 25 billion. “They started in 1948 with a 10×10 shop in Hamburg… I could not sleep that night thinking of the potential that lay ahead,” Siddhartha once said.
A retail brand, he realised, was just the natural corollary to his coffee-growing and trading business.
ABC to CCD to IT
Thus was born Cafe Coffee Day. Its first outlet, in 1996 in central Bengaluru, added an extra perk to its cosy environment and good coffee: the Internet. At a time when many accessed the Internet through cyber cafes, the early CCDs had computers that customers could use.
Siddhartha next began diversifying into sunrise sectors of the time like information technology. He was an early investor in firms like Mindtree Technologies Ltd and Kshema Technologies. “Although he is known as the coffee king, few people know he supported the IT industry at a time when there were very few investors,” an advisor to Siddhartha said. The coffee king in fact confessed he considered IT czars like Azim Premji, Nandan Nilekani and N R Narayana Murthy among his inspirations.
By 1999, father-in-law S M Krishna had become the CM of Karnataka. Those who know him say that despite this, Siddhartha remained down to earth and humble. “He would walk any visitor who came to his office to the lift. If it was a very important visitor he would walk them down to the entrance. If there was a social event in the family of an employee, he would attend irrespective of the stature of the employee if invited and in town,” the aide said.
Actor Raghavendra Rajkumar said when forest brigand Veerappan kidnapped his father, the thespian Dr Rajkumar, in 2000, Siddhartha kept the family together. “We didn’t know what to do, whom to approach… Siddhartha said, ‘You are family and you have the right to meet us any time’,” Raghavendra wrote in an article following the businessman’s death.
However, that episode also marked the change in the profile of Siddhartha from a low-key businessman to a key power centre. A book written by then state police chief
C Dinakar, Veerappan’s Prize Catch: Rajkumar, spoke about how Siddhartha and a police officer had travelled twice to Chennai with ransom for Rajkumar’s release.
Meantime, Siddhartha’s fortunes kept growing, as he ventured into real estate, created SEZs and tech parks around Bangalore (later Bengaluru). Around 2006, Siddhartha diversified into the hospitality business, launching the high-end luxury eco resort enterprise Serai Resorts, with properties in Chikamagalur and the Bandipur National Park region. In 2010, the business attracted global private equity investor Kohlberg Kravis Roberts (KKR).
By 2019, Coffee Day Enterprises (CDE) had ballooned to a nearly Rs 8,000 crore worth enterprise, even as CCD outlets crossed the 1,700 mark.
Backroom to frontlines
In 2017, when Krishna ended a 46-year association with the Congress to join the BJP, many Congress leaders in Karnataka suggested that the 85-year-old was changing his loyalties to protect the business interests of his son-in-law.
While Siddhartha was already a successful businessman by the mid-1990s, Krishna’s 1999-2004 tenure as CM and May 2009-October 2012 stint as External Affairs Minister provided huge leverage for his interests. RBI records for foreign investment outflows from India for 2007 to 2013 reveal that Siddhartha’s ABC channelled nearly USD 5 million of investment (out of a total USD 6 million) to a Cyprus-based subsidiary firm, A N Coffee Day International Ltd.
The expansion of Siddhartha’s businesses abroad —including coffee outlets in Vienna and Prague and agricultural holdings — also coincided with Krishna’s tenure as Union minister. One of Siddhartha’s dreams was to make his Coffee Day brand globally recognised, as he lamented the lack of Indian brand names on high streets like Oxford Street in London or Orchard Street in Singapore.
Congressmen claimed that by joining the BJP, Krishna wanted to ensure his family’s interests were protected if the NDA government went after its rivals to stifle poll funding. Krishna’s second daughter incidentally is married to the stepbrother of Vijay Mallya, the liquor baron whom the government has made an example of for bad loans.
In his statement on Siddhartha’s death, Mallya drew that parallel. “I am indirectly related to V G Siddhartha. Excellent human and brilliant entrepreneur. I am devastated with the contents of his letter. Government agencies and banks can drive anyone to despair. See what they are doing to me despite offer of full repayment,” he said.
The tax dragnet
But, in the end, Krishna’s change of loyalties did not shield Siddhartha. An income tax investigation in 2017 against D K Shivakumar, one of Krishna’s proteges in the Congress, is believed to have put the authorities on the trail of Siddhartha. Like Siddhartha and Krishna, Shivakumar is a Vokkaliga.
In his purported suicide note, Siddhartha cited troubles with tax authorities. “There was a lot of harassment from the previous DG Income Tax,” the letter said.
The Income Tax Department has denied undue pressure, saying it “acted as per provisions of the Income Tax Act”. “The investigation in the case of Sri V G Siddhartha and Cafe Coffee Day arose from the search in the case of a prominent political leader of Karnataka. It is based on the unearthing of crucial evidence of financial transactions done by the CCD in a concealed manner,” the department said in a statement after Siddhartha’s death. “A person holding Singapore citizenship was also covered in the search action. He was found with unaccounted cash of Rs 1.2 crore and admitted the cash belongs to Siddhartha,” tax officials said.
Sources said “the prominent political leader” referred to by the department was Shivakumar, and that probe had shown that Rs 20 crore had been transferred to him through CCD-linked entities. Officers also claimed to have found links between Shivakumar and Siddhartha during a 2017 search on a former director of Siddhartha’s Cyprus-based firm A N Coffee Day International Ltd, who is a Singapore citizen.
Within a month of the searches against Shivakumar and his aides, in September 2017, the Income Tax Department cracked down on 25 premises linked to Siddhartha.
Shivakumar, who was with Siddhartha’s family for his funeral, said on social media, “It’s unbelievable that a courageous man like him would resort to this. I urge a thorough investigation… Shri Siddhartha and his family were closely known to me for decades.”
On the tax evasion cases against him and his associates, the Congress leader has said, “We are ready to face these challenges.” His brother, MP D K Suresh, has said, “We are being targeted by the BJP. They have instructed officials of the CBI, I-T and ED to do these things.”
Cup of woes
At least three persons close to the group told The Sunday Express that Siddhartha compounded his troubles by ignoring a fundamental tenet of business in his passion to build a big brand. He kept pumping money into CDE by raising debt, even as profits were not in sight.
So, even as the consolidated profit of the company stood at Rs 147 crore in the year ended March 2019, around the same levels as last year, the consolidated finance charges for CDE rose sharply from Rs 349 crore in FY’18 to Rs 456 crore in FY’19.
Insiders and people who have worked with the group say debt had been an issue with the group since 2008. Apart from Coffee Day, some of the burden on the group and Siddhartha’s personal asserts was brought on by overseas business interests. “All of Siddhartha’s foreign ventures turned out to be white elephants,” says a source, giving the example of Siddhartha’s investment into a timber import business in Ghana, which went bust. “There was a sense that if a strong brand is built, he could monetise and exit, but that could not happen.”
The company’s filing with stock exchanges and Registrar of Companies shows that as the debt level of the CDE group rose to Rs 6,500 crore, Siddhartha borrowed from one to repay the other.
Over the last few years, Siddhartha had mortgaged his immovable properties and pledged a large part of his shareholding in CDE, other group companies and Mindtree as security to raise funds. While only 12.66% of Siddhartha’s holding of 32.75% in CDE (i.e. 38% of his holding) was pledged till March 31, 2018, this had gone up to 71% as on July 1, 2019. In fact, by then, over 68% of the promoter holding of 59.74% in CDE had been pledged.
In May 2019, CDE and Coffee Day Trading Limited, also promoted by Siddhartha’s family, sold their entire stake in Mindtree, along with Siddhartha’s personal stake, to L&T Ltd, for Rs 2,100 crore (the net of expenses and taxes). The company said this would “pare down the Coffee Day Group’s debt”.
Some of the privately held companies of Siddhartha, including Devadarshini Info Technologies, Coffee Day Consolidations, Gonibedu Coffee Estates and Sivan Securities, also piled debts, amounting to over Rs 3,500 crore.
Siddhartha indicated some of the stress he was under in his “suicide letter”, saying, “I fought for a long time but today I gave up as I could not take any more pressure from one of the private equity partners forcing me to buy back shares, a transaction I had partially completed six months ago by borrowing a large sum of money from a friend. Tremendous pressure from other lenders led me succumbing to the situation.”
While the letter refers to a private equity partner, a source in the financial services industry said Siddhartha was under pressure from a distress debt fund that had provided the family money in January-February 2018 to buy back shares of CDE from KKR. In February 2018, when KKR reduced its holding in CDE from 10.33% to 6.07%, the exit seems to have been provided by the promoter family. Shareholding data show that the same day, the shareholding of Siddhartha’s wife Malavika jumped from 1.44% to 4.05%.
According to business associates of Siddhartha, they were under the impression that “the KKR situation had been worked out” and that things were under control. “There seems to have been a cascading effect where one crisis was leading to another and there seemed to be no let-up,” a business associate said.
The CDE board has sought investigations into Siddhartha’s “suicide letter”, including his claims of harassment by tax authorities. “The Board took cognisance of statements… relating to financial transactions outside the knowledge of the senior management, auditors and the Board. While the authenticity of the letter is unverified and it is unclear whether these statements pertain to the Company or the personal holdings of Mr VG Siddhartha, the Board took serious note and resolved to thoroughly investigate.”
The Congress has called Siddhartha’s death “the result of harassment by I-T officials” and said it shows the “decline of India’s entrepreneurial position with tax terror”, a statement dismissed by the BJP, now in power in the state, as “opportunism by vultures”. “Investigation will reveal the facts. Until then respect the sentiment of masses and display some humanity,” BJP Karnataka unit said.
Chief Minister B S Yediyurappa as well as several leaders from the Chikamagalur region, where the BJP is dominant, were among those who turned up to pay their respects to Siddhartha in his home town.
What remains undisputed is Siddhartha’s legacy as one of India’s pioneering entrepreneurs. And at least one part of his “suicide letter”. Siddhartha wrote about the thousands of jobs he had created, in his companies, subsidiaries, IT sector, and regretted that after “37 years with strong commitment to hard work”, he had “failed to create the right profitable business model”.
“I would like to say that I gave it my all.”
with SANDEEP SINGH
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