Thanks to share your views @ Shardhr.
I appreciate your point that since the idea was not scalable, you decided not to spend a lot of time on it. The reasons I decided to dig deeper were (1) it was an interesting problem to think about (2) One never knows. If one digs deep enough, something interesting might come up and the idea could then become scalable (3) settlement of bonds through a bankruptcy process in India is happening for the first time. Following it and doing in depth work may add to the knowledge repository and possibly be handy in future.
To your points I would say this
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I agree that NCDs would be settled as per a record date. My question is about the additional payment (to the extent of 100%) to the small bondholders. Would only the small bondholders that were bondholders before DHFL went into bankruptcy get the additional benefit or people who buy it even now ? Thinking about it from a rational point of view, the people who suffered pain should ideally benefit from the additional payment. There has been a case precedent (not exactly same but on similar lines).
RayBan India was bought by Luxottica. An open offer was announced at a particular price. SEBI disagreed with the price and directed the acquirer to revise the open offer price upwards. The matter went to SAT and then to the Supreme Court. Took a long period of time for the matter to be decided. Finally, the open offer price was revised upwards and the acquirer was also directed to pay 10% compound interest on the revised open offer price to the shareholders. However, the Supreme Court directed that delayed interest ( which had become quite substantial and almost equal to the open offer price) would be paid only to the those shareholders who held the shares on the date of the original offer and continued to hold the shares till the matter was decided. -
If the returns were 2.5x in 2 years, of course it would be a wonderful idea and there wouldn’t be a reason for any concern. My point is that 2.5x in 2 years is just one of the possibilities. And we should think in terms of probability. We would all agree that it’s not a 100% probability, nothing is. My sense at this point of time is that the probability of the small bondholders getting 100% of their principal is way lesser than 100%. It doesn’t mean it can’t happen. It’s just that the chances seem lower in the light of the available information or rather the lack of it. We should think in terms of weighted expected realization and then see if the trade looks attractive.