Coffee Day group kick-starts assets divestment amidst regulatory overhang

In a bid to bring down its admitted debt of Rs 4,970 crore, Coffee Day Enterprises has closed the first divestment. In a statement to the Bombay Stock Exchange (BSE), the company said that it had signed definitive agreements with Blackstone Group and Bengaluru-based real estate developer Salarpuria Sattva Group for an investment of Rs 2,700 crore in GV Techparks Private Limited, a wholly-owned subsidiary of Tanglin Development Limited (TDL).

According to the agreement, Coffee Day Enterprises Limited (CDEL) is expected to realize the sale value in two tranches. The first tranche of Rs 2,000 crore will be received by on completion of certain conditions including regulatory approval. The remaining Rs 700 crore will be realized upon fulfilling additional conditions.

The exchange filing states that CDEL expects the transaction to close by the end of October and fulfill all the conditions required to receive the first trance, i.e Rs 2,000 crore. On the realization of the entire sale value, CDEL now expects its total debt to come down to Rs 2,270 crore. The Global village tech park situated on Mysore road in Bengaluru is now a prime piece of real estate spread over 120 areas and houses the headquarters of Mindtree and several companies such as Globaledge software, Magnasoft, NTT data, Textron situated in the campus.

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However as disclosed by CDEL to the BSE, TDL has secured loans of Rs 1,622 crore under its belt.

According to the regulatory filing of Tanglin Development, as of 31 March, 2018, CDEL, the largest shareholder, held 51,31,651 shares in the company along with seven other members including late VG Siddhartha the founder of the company and his wife Malavika Hegde.

As of end of 31 March, 2018, the total sales had increased to Rs 134.26 crore from Rs 122.95 crore in the same period last month. However, profit after tax (PAT) reduced significantly from Rs 34.47 crore in March 2017, to Rs 9.3 crore in March 2018, largely owing to increased expenses that shot up from Rs 135.41 crore (March 2017) to Rs 211.1 crore (March 2018).

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Also, a cursory look at the filing also suggests that Tangling developments around 21 January, 2019, has created a charge on some of its assets and raised Rs 915 crore from Axis Trustee Services Limited. Now with substantial charges and share pledges, the fulfillment of 'conditions precedent' which sources say includes ironing out problems which could hinder share transfer, will be a decisive factor for the closure of the deal.

Global Village Tech Park the wholly-owned subsidiary of Tanglin Development Limited contributed 152.85 crore in revenue amounting to 3.52% of the total revenues of TDL.