The Tata group’s offer to buy the Coffee Day Group’s beverage vending machine business has hit a hurdle with two lenders to the struggling coffee chain blocking the deal until their dues are cleared, two people with direct knowledge of the matter said.
Yes Bank and Rabobank, lenders to Coffee Day Global Ltd (CGDL), have demanded repayment of their entire dues for granting a no-objection certificate (NOC) to the proposed deal, the people said on condition of anonymity. CDGL, a unit of publicly traded Coffee Day Enterprises Ltd, runs the Café Coffee Day (CCD) outlets.
“The deal requires NOC from 14 lenders of CDGL. Most of them have in-principle agreed to grant NOC, except Rabobank and Yes Bank. These are the two of the largest lenders, and the coffee vending business, along with a few other assets of CDGL, were collateralized with them for the loan that is worth at least ₹300 crore,” said one of the two people.
Tata Consumer Products Ltd, which owns the Tetley Tea and Tata Salt brands, has proposed to buy the coffee vending business from CGDL for at least ₹1,000 crore.
A Tata Consumer spokesperson declined to comment on the developments but said “the company evaluates various opportunities on an ongoing basis”.
A Yes Bank spokesperson declined to comment.
“We respect the confidentiality that Rabobank clients are counting on and normally do not comment on an existing or non-existing business link with specific companies, and will not elaborate nor specify proceedings or possible deals concerning individual clients,” said a Rabobank spokesperson from Utrecht, Netherlands.
The dues to be repaid by CDGL are worth around ₹100 crore to Yes Bank and ₹200 crore to Rabobank, said this person. Karnataka Bank is the largest Indian lender to CDGL, with a loan of ₹175 crore.
“Yes Bank’s loan was a conventional term loan, and the Rabobank loan was in the form of ECB (external commercial borrowing). But since these lenders have the coffee vending business itself as collateral, they are able to dictate more than the other 12 lenders on NOC for this deal,” said the first person.
“As part of the proposal submitted by Tata to Coffee Day, the Tata group has agreed to first pump in ₹600 crore into CDGL and, subsequently, pay ₹400 crore or more after certain months. The second tranche of the investment will come after Tata assesses the degree of revival in cash flows in the coffee vending business of CDGL post the buyout,” said the first person.
The plan that has been presented to CDGL’s lenders entails an equal amount of repayment, irrespective of the loan size, to each of the 14 lenders from the proceeds of the investment proposed by Tata Consumer, the people said.
“Yes Bank and Rabobank are reluctant to agree to this plan and have demanded more than other lenders or full repayment of their loans,” said the first person.
“The lenders have to realize that if the deal to sell the coffee vending business does not go through or gets delayed further, they may be forced to take a larger haircut or even a complete loan loss. If a company like Tata buys out the business, the chances of revival are much higher, which will ultimately help the lenders to recover loans,” the second person said.
The Tata group also operates the Starbucks cafe chain in India. The country’s largest conglomerate is looking at Coffee Day’s vending machine business for synergies.
CDGL provides its own coffee grinding-cum-vending machines, own coffee beans and fresh milk to more than 60,000 loyal clients across multiple markets, including malls, offices, other public places, schools and colleges.
The company has a large number of corporate customers and generates steady revenues.
The promoters of Coffee Day Group are in need of funds to repay their debts after the death of founder V.G. Siddhartha. A recent investigation has revealed that ₹3,535 crore was siphoned off from the company by the entrepreneur’s personal firms.
