Coffee Day board appoints EY for audit; to choose strategic advisor soon

The board of directors at Coffee Day Enterprises has appointed EY to scrutinise the books of accounts of the company along with its subsidiaries in the light of the purported letter written by the chain’s founder V G Siddhartha, who was found dead in mysterious circumstances last month. The company made the disclosure in a regulatory filing on Thursday after a board meeting.  

The board has also decided to appoint a person of eminence or a reputed firm as its strategic corporate advisor for determining the strategic direction for the firm.

The Coffee Day founder had claimed that none of his team, auditors, senior management or the board was aware of his personal financial transactions. Although the veracity of the letter is under investigation, such claims had raised doubts on the existence of unknown financial transactions beyond the knowledge of the board. Industry experts said EY was likely to conduct a forensic audit to find out if there was any off-the- book transactions without the knowledge of the key management and auditors.

“EY is likely to look at the forensics of the book, because the board also needs to know the right picture. This is a positive sign,” said Shriram Subramanian, founder of corporate governance advisory firm InGovern. “Also, the decision to rope in a strategic advisor is timely because it can provide a direction. However, these are just initial steps and we have to wait for the outcome of the EY audit to form a view.”

Sources privy to the development said that EY was selected because it was the only audit firm among the big ones which had not acted as an auditor for Coffee Day Enterprises or its 45 subsidiaries. 

The mandate of the audit firm includes all kinds of audits including forensic one, they added. In its last board meet held on July 31, the board had roped in law firm Cyril Amarchand Mangaldas as its legal counsel to advise on related matters.

During Thursday’s marathon board meet, stretching for more than six hours, Malavika Hegde, wife of late Coffee Day founder, was appointed as an additional member of the executive committee. Currently, the executive committee is vested with all the powers of then chairman and CEO and comprises the group's interim chairman S V Ranganath, chairman of real estate subsidiary Tanglin Nitin Bagmane and group CFO R Ram Mohan.

Among directors, Albert Hieronimus- an independent director on the board- had flown down from Germany to Bengaluru to attend Thursday's meet while Sanjay Nayar, the country head of KKR and a nominee director, joined through audio conference. Malavika Hegde was not able to attend the meet as she had to attend some rituals in Chikmagalur, which is the home town of Coffee Day founder.      

However, according to industry watchers, the outcome of the board meeting was devoid of any specifics regarding deleveraging the balance sheet of the firm. “This is vague because it is not clear whether they will explore to sell it or continue with the expansion or go for fundraising,” an analyst said. Sources close to the company had earlier told Business Standard that the company was considering monetising its Global Village tech park located off Mysore Road in Bengaluru to reduce its debt to around Rs 3,000 crore from Rs 6,500 crore now. The company was also looking at roping in a strategic investor in the coffee retail chain business. However, Thursday’s meet was silent on such strategic moves.

Meanwhile, the share price of Coffee Day Enterprises was on a free fall and touched a new 52-week low of Rs 76.85 on Thursday on the NSE.