Akshata Sharma
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Uday Kotak, the founder of Kotak Mahindra Bank, recently expressed concerns on X about a growing trend among financially troubled Indian companies: issuing shares on a preferential basis to creditors, which he compared to a magician's sleight of hand that seemingly creates money out of thin air.
Although he did not specifically mention Vodafone Idea (Vi) or its head, Kumarmangalam Birla, Kotak's comments seemed to subtly criticize the telecom company, which had recently issued shares worth Rs 2,458 crore to its equipment vendors, Nokia and Ericsson, to partially settle outstanding dues.
With an issue price of Rs 14.8 per share, Nokia received an equity stake worth Rs 1,520 crore, while Ericsson got equity worth Rs 938 crore.
In his post, Kotak noted that issuing equity to creditors is one strategy for debt repayment when a company faces financial challenges.
He explained that if the stock is actively traded, creditors can sell their shares on the market and recover their money from investors.
"Financial markets create money out of thin air? A model for companies in financial difficulty: issue equity to creditors to repay their debt. If the stock is well traded, the creditor can sell in the market and get paid by investors. What is the story about Peter and Paul?" Kotak wrote.
It's also important to note that Vi has previously engaged in the shares-for-debt strategy.
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