Banking haircuts have been in the limelight ever since the Insolvency and Bankruptcy Code has been implemented. However, it has not stopped bankers from trying to get a good deal.
In a first, bankers have converted the entire unsustainable debt of the Kolkata-based Electrosteel Steels into equity. By doing so, they were able to acquire a larger chunk of equity under the new capital structure where successful bidder Vedanta gets 90 per cent stake. By accepting equity in lieu of unsustainable debt (almost 55 per cent of the entire debt), these bankers ended up as the second largest shareholders in the new entity behind the new promoter or bidder.
In essence, the structure is close to the original SDR scheme that has now been stopped by the RBI. It is an interesting role reversal from being creditors to equity shareholders. The risks are certainly higher for banks as equity is often the last in the windfall mechanism, but they have less to lose too.