By Sachin Ravikumar and Nivedita Bhattacharjee
BENGALURU (Reuters) – The founder and largest shareholder of India’s biggest coffee-chain owner Coffee Day Enterprises <CODE.NS> went missing on Tuesday, with media reports citing a letter purportedly written by him that said he gave in to pressure from lenders and tax authorities.
VG Siddhartha, the founder of the Cafe Coffee Day chain, was not reachable since late Monday, his flagship entity Coffee Day Enterprises said in a regulatory filing.
The company’s stock tumbled 20% to its lowest ever as investors fretted about the contents of the letter.
Police officials said he was last spotted on Monday night on a bridge over a river near Mangaluru, a port city about 350 kilometres from India’s tech hub of Bengaluru.
Siddhartha asked his driver to wait for him on a bridge while he took a walk, police official Hanumantharaya told Reuters. When he did not return, the driver alerted the police.
Indian television channels showed rescue workers in rubber boats scouring the Nethravathi river near the bridge where Siddhartha, who hails from a coffee-growing family, was last seen.
Some Indian media reports speculated Siddhartha was under pressure over outstanding debts. The letter blamed an unnamed private equity partner for pressuring him into a share buyback and tax authorities for “harassment” and decisions that hurt the company’s liquidity.
“I fought for a long time, but today I gave up,” Siddhartha allegedly wrote in the letter, which was available on social media and published by media https://economictimes.indiatimes.com/news/politics-and-nation/ive-failed-sorry-to-let-you-all-down-siddharthas-last-letter-found/articleshow/70444308.cms.
Reuters was unable to independently verify the authenticity of the letter and its contents. One board member told Reuters that they had not personally received the letter and could not comment on its authenticity.
“The investigation in the case of VG Siddhartha and Cafe Coffee Day arose from the search in the case of a prominent political leader in Karnataka,” a statement from the Income Tax department said, without naming the politician.
“It is based on the unearthing of a credible evidence of financial transactions done by CCD in a concealed manner.”
Coffee Day said in a filing to the exchanges that its board was reviewing a copy of the July 27 letter and had shared a copy with relevant authorities.
U.S. private equity investor KKR, which owns slightly more than 6% of the company, said in a statement that it was “deeply saddened by the developments.”
Siddhartha owns a direct stake of 32.75% in the company, which has some 1,700 outlets that brew cappuccinos and lattes for India’s booming moneyed class and competes with the world’s biggest coffee chain Starbucks <SBUX.O>.
Together with his family and holding companies, he controls 53.93% of the firm.
As of June 30, Siddhartha, his family and their holding companies had pledged or encumbered about 75.7% of their stake in Coffee Day toward various borrowings. And Coffee Day’s 2018 annual report showed Siddhartha had also personally guaranteed most of the borrowings.
He also recently sold about 20% of his stake in tech firm Mindtree <MINT.NS> to engineering and construction firm Larsen & Toubro Ltd <LART.NS>.
Siddhartha was in talks with Coca-Cola <KO.N> to sell CCD for as much as $1.45 billion (£1.19 billion), The Economic Times reported last month.
Investors were jittery as the letter mentioned hidden transactions, with the news coming at a time when India’s banking sector is already wrestling with mounting bad loans.
“My team, auditors and senior management are totally unaware of all my transactions. The law should hold me and only me accountable,” the purported letter read.
It did not provide further details on the transactions.
Coffee Day’s net debt stood at 76.5 billion rupees ($1.11 billion) in March, according to Refinitiv data.
“This could well be another problem for lenders by turning into a default,” said Shriram Subramanian, a corporate governance expert and founder of proxy advisory firm InGovern.
Coffee Day’s stock hit an all-time low on Tuesday. Shares closed at 153.4 rupees, after hitting their lower circuit for the trading day.
The company sought to allay investor concerns, saying earlier on Tuesday that it was “professionally managed and led by competent leadership team, which will ensure continuity.”
A board member said another meeting would be held on Wednesday at 0530 GMT (11 a.m. local time).
(Additional reporting by Aftab Ahmed in New Delhi, Derek Francis in Bengaluru and Abhirup Roy, Alexandra Ulmer and Savio Shetty in Mumbai; Writing by Euan Rocha and Alexandra Ulmer; Editing by Sherry Jacob-Phillips and Saumyadeb Chakrabarty)