Coffee king Siddhartha's death exposes India's mounting debt crisis

Siddhartha's death marks a tragic turn for an admired member of India's business elite and an executive closely connected to the highest echelons of the political sphere.

Business Standard : Even before the body of coffee-chain tycoon V.G. Siddhartha was recovered from a river in southern India this week, the financial strains that appear to have led him to take his own life were beginning to emerge.

A letter purportedly written and signed by Siddhartha and sent to senior management of Coffee Day Enterprises Ltd. laid out in stark words his struggles with a “serious liquidity crunch” that in turn had led to "tremendous pressure" from lenders and an unnamed private-equity investor.

“I would like to say I gave it my all,” Siddhartha wrote. “I am very sorry to let down all the people that put their trust in me. I fought for a long time but today I gave up.” He sent the note to the board on July 27. Two days later, the executive was reported missing after telling his driver he’d go for a stroll.

Siddhartha’s death marks a tragic turn for an admired member of India’s business elite and an executive closely connected to the highest echelons of the political sphere. Over the course of more than two decades, Siddhartha built a java empire that now boasts more than 1,700 stores -- ten times as many outlets as Starbucks Corp. in India -- as well as 54,000 vending machines, almost single-handedly introducing his tea-loving country to coffee shops and making his Cafe Coffee Day chain a household name.

Refinancing Loans

But what was less known was that for all his company’s scale and ubiquity, Siddhartha struggled with a mounting financial burden. A review of the public disclosures of Siddhartha’s personal debt reveals how he spent much of the two years before his death putting up ever more of his Coffee Day shares to refinance loans for ever shorter periods, at ever higher rates of interest.

At Coffee Day itself, short-term debt more than doubled in the financial year ended March. Siddhartha spent most of his last two weeks in Mumbai trying to raise funds to pay down debt, according to a person familiar with the matter. He had payments due in July and August, the person said. Coffee Day’s board held an emergency meeting on July 30, saying it’s confident that it can “ensure continuity of all business operations consistent with past behavior.”

The apparent suicide of the Indian entrepreneur has touched a nerve with the corporate elite of India, where business leaders face mounting strain from an economy-wide cash crunch and slowing growth. The anxiety laid out in Siddhartha’s letter, with multiple references to pressure from lenders and stakeholders, is an unwelcome scenario for Prime Minister Narendra Modi as he begins his second term with promises to turn India into an economic powerhouse, even as its commercial engine shows increasing signs of sputtering.