Business Today – August 25, 2019

28 IBUSINESS TODAYIAugust 25 I 2019

Group, Kotak Mahindra Investments, Piramal, and
a few other lenders. “He got some 500 crore of new money from these lenders,” says a source. Clearly, Sid- dhartha’s debt was rising without any major change in cash flows or revenues. But Siddhartha wanted to project a rosy picture. For example, group company Sical has a mine contract from which he claimed rev- enue of10,000 crore spread over several years.
Bankers also say that Siddhartha was running out
of collateral. He had put all assets on the table – from
pledging the shares of group companies, their assets,
strategic investments in other listed companies, cor-
porate guarantee by almost all his large companies,
personal guarantee on various group company loans,
and fixed deposits of group companies. In fact, the
lenders also have a charge on all his cash deposits
with landlords of the cafés and also future outlets.
“The company often talked about net debt (gross debt
minus cash deposits, etc), but the fact was that all the
cash and deposits were under the charge of lenders,”
says a banker who did not wish to be named.

COMPLICATED STRUCTURE

In 2017/18, CDEL started streamlining its report-
ing to bring in better clarity on its finances. Right
from the time of listing, many analysts had pointed
out how complex the company’s structure was and
how the reported numbers failed to show the value
that Siddhartha had envisaged. In fact, the auditor’s

note by BSR & Associates, dated May 24, 2019, states

that they did not audit the financial statements of 40

subsidiaries included in the consolidated annual fi-

nancial results, whose annual statements show total

assets of `12,140 crore (March 31, 2019) and total

revenue of `4,092 crore. “The consolidated annual

financial results also include the Group’s share of net

profit (and other comprehensive income) of `87.82

crore... in respect of two associates and two joint ven-

tures which has not been audited by us.”

A holding company, four major subsidiaries, 40-

plus step-down subsidiaries and over half a dozen

associates and joint venture companies – CDEL has

a complex structure, difficult for public investors to

follow. This makes it difficult for lenders, sharehold-

ers and regulators to trace the end-use of funds and

also the returns. The business model, however, worked

well for Siddhartha as he was borrowing at all levels

and also funding his new ventures from the holding

company. But such a structure is a recipe for disaster

as asset liability management becomes difficult. In-

terestingly, the two-member board-level risk manage-

ment committee had him and his wife, since 2015. In

the past one year, the committee never met. Siddhar-

tha was also managing the affairs of the group almost

singlehandedly without top notch professionals.

IL&FS is a recent example where a 3-tier struc-

ture (holding company, subsidiaries and special pur-

pose vehicle) eventually brought down the entire

company. The analyst community quote another par-

allel in Videocon Industries, which used the flagship

WHAT CDEL

SHOULD DO

TO SURVIVE

Simplify the organisa-
tional structure

Consolidate similar
businesses under
group entity

Monetise non-core
assets of the group

Work on structured
debt reduction plan

Strengthen the board
and appoint a CEO

IN THE HOT SEAT

Cyril Shroff

Cyril Amarchand Mangaldas &

Co., legal counsel

Nitin Bagmane

Interim Chief

Operating

Officer

R. Ram Mohan

CFO

S.V. Ranganath

Interim Chairman

COVER STORY> V.G. SIDDHARTHA