Mumbai: CARE Ratings has downgraded credit rating on Coffee Day Global's long-term bank facilities to BBB from A and continued on credit watch with negative implications.
The rating agency said that the demise of V G Siddhartha, founder of Coffee Day Group and Managing Director of Coffee Day Global Ltd (CDGL) may have a discernible effect on the company's operation. It took cognizance of statements in the purported letter from Siddhartha including his reference to financial transactions which his team, auditors and senior management are unaware of.
The company's board of directors has resolved to thoroughly investigate the matter, adding that total debt of the Coffee Day Group stands at Rs 4,970 crore and all obligations to the lenders will be honoured. "The rating revision takes into account a significant rise in debt of CDGL since March 31, 2018 particularly steep rise in debt in July 2019," said CARE.
The board of Coffee Day Enterprises Ltd (CDEL) said on August 17 that the debt of CDGL was Rs 1,097 crore as on July 31 (secured loan of Rs 1,009 crore and unsecured loan of Rs 88 crore). It may be noted that company's debt level has increased from Rs 425 crore as on March 31, 2018 to Rs 776 crore as on March 31, 2019.
For the month ending June 30, the company had reported gross debt of Rs 706 crore which steeply increased to Rs 1,097 crore as on July 31.
"Increase in supplier advances and decline in advances from customer may be attributable to the rise in working capital borrowings between March 31, 2018 and March 31, 2019. Further, the company has incurred higher than envisaged capex including capital advances resulting in rise in term debt."
Also, CELD has announced sale of certain assets which are expected to reduce the overall debt of the group. However, the reduction in debt in CDGL is not specifically known.
"Further, in view of heightened liquidity risk at the group level, likelihood of support from CDGL is high which would weigh negatively on company's credit profile."
CARE said it is awaiting more clarity from the management and also on the outcome of audit report. It will continue to monitor the situation and will take appropriate action once clarity emerges, said the agency.