On the night of June 10, the Union finance ministry issued an order banning the conversion of non-convertible debentures and of the non-convertible portion of convertible debentures into equity shares. It explained this decision in terms of its desire to prevent speculation in debentures. This was an extraordinary statement which could in no way add to the government’s credibility in such matters. For the debentures in question had been rising in the market for months. The debentures were Reliance’s E and F series and Rs. 100 ‘E’ series had moved to well over Rs. 200 some six months ago. So if the finance ministry was concerned mainly with what it calls speculation in debentures, it should have acted a long time ago. Perhaps someone in the ministry noticed this lacuna. That may be one reason why six days after the decision, the Press Trust of India has put out a report that a new set of guidelines for investment have been under consideration since January and that the decision to ban the conversion of non-convertible debentures into equity shares is in conformity with these new guidelines.
This is an even more bizarre statement than the first one. If the new investment guidelines have been under consideration in the finance ministry, surely the controller of capital issues, other senior officials in the department, heads of public financial institutions and finally the Reserve Bank of India must have been brought into the picture at some stage. But these officials and institutions have behaved as if they knew nothing about the proposed new guidelines. Even an innocent in financial matters would know that a corporate giant just does not announce its intention to convert a debenture series into equity shares unless it has held long discussions with the chief executives of the financial institutions, CCI, Reserve Bank officials and so on. In this specific case, these officials had met on June 4 and agreed tothe conversion in principle; they had felt that the company was proposing to offer too little to debenture holders – one share for two and a half debentures – and that it should be more generous. Surely they could not have acted in this manner if they had been consulted about some new guidelines which completely ban all such conversions. Perhaps the new guidelines were in preparation, not in the finance ministry but elsewhere. Perhaps some bright young men in the Prime Minister’s secretariat have been seized of the matter. Since in that set-up they do not take so long to settle such ‘minor’ issues, it looks unlikely that it has been under consideration since January. The general policy issue has got tangled with Reliance. The two cannot be separated. But that need not disable the government from explaining its decision in terms which are credible.