Adding the following two lines to 'open-vm-tools' service unit file
fixes the issue.

DefaultDependencies=no
Before=cloud-init-local.service

Here is the total content of 'open-vm-tools.service' file

"""
[Unit]
Description=Service for virtual machines hosted on VMware
Documentation=http://open-vm-tools.sourceforge.net/about.php
ConditionVirtualization=vmware
DefaultDependencies=no
Before=cloud-init-local.service

[Service]
ExecStart=/usr/bin/vmtoolsd
TimeoutStopSec=5

[Install]
WantedBy=multi-user.target
"""

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https://bugs.launchpad.net/bugs/1667831

Title:
  cloud-init dependency for open-vm-tools service

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