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Opinion
Andy Mukherjee

A Dangerous Debt Ruling in India

The insolvency tribunal’s decision on Essar could cause credit costs to surge, bank shares to drop and foreign investors to exit.

The Essar decision upends a global principle of finance.

The Essar decision upends a global principle of finance.

Photographer: Dhiraj Singh/Bloomberg

India’s insolvency tribunal has made a dangerous decision. Unless its judgment is quashed, credit costs for India Inc. will surge, shares of state-run banks will swoon and foreign investors will flee.

The case concerns the country’s most high-profile bankruptcy, Essar Steel India Ltd. Insolvency judges recently ruled that creditors whose claims are backed by collateral won’t get preferential treatment in the $6 billion sale of the company’s plant to ArcelorMittal. Secured creditors will stand in line with unsecured creditors.