Strategic Debt Restructuring Scheme

The RBI, in its recent circular titled "Strategic Debt Restructuring Scheme", provided a framework whereby lender banks have been granted enhanced capabilities to initiate a change in ownership of a defaulting borrower by converting the loan dues into equity shares. As per the circular, the option to resort to SDR must be approved by the shareholders of the borrower company by way of a special resolution at the time of the initial restructuring. During the restructuring, if the lenders decide to undertake the SDR mechanism, a maximum period of 180 days is available for them to complete the conversion of the debt to equity either by the lenders themselves or through the CDR mechanism. Lenders must acquire atleast 51% of the share capital of the borrower. The circular seems to give lenders the discretion to determine the fair value, i.e., the price at which the debt is converted into equity, subject to upper and lower limits. As there is no clarity on how to arrive at the