This refers to T N Ninan’s article on Kingfisher’s debt position (“Five star banking,” April 16). That an SBI-led consortium of banks agreed to convert part of the loan into equity by getting a 23 per cent shareholding at a price 60 per cent above the market price does not reflect well on the management of the banks. It is simple business prudence that secured loans command lower interest rates than unsecured ones. The consortium needs to explain what “forced” them to convert unsecured debt at a 60 per cent premium.
It is equally shocking that the converted debt equals just 23 per cent of the equity. The deal certainly was a bad one and the consortium could have easily got nearly 33 per cent equity and three board seats on Kingfisher had the negotiations been more prudent. The consortium could have referred to the celebrated case Mihir H Mafatlal vs Mafatlal Industries Ltd (1996 Supreme Court) in the valuation of the shares before finalising the conversion ratio
J V Krishna, Hyderabad
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