Investors searching for bargains in companies under the Insolvency and Bankruptcy Code (IBC) were rudely awakened by Electrosteel Steels Ltd’s resolution. They had dreamt of a fairy- tale scenario, where banks and other creditors would take a haircut on loans, but investors would feast on the leftovers.

The little details available on Electrosteel’s resolution confirm that the base-case scenario looks nightmarish.

Vedanta Ltd will invest Rs1,805 crore to get a 90% equity stake in Electrosteel. That values the remaining 10% equity at Rs200 crore, less than a third of the company’s existing market capitalization of Rs653 crore. Not only are existing shareholders included in this 10% but it also includes fresh equity issued to banks in lieu of debt.

Electrosteel’s shares have a long way to fall. Since Wednesday, they are down by 9.7% with circuit filters preventing a bigger drop. Electrosteel’s downfall hit shares of other firms in the first batch of 12 companies referred to IBC for insolvency proceedings (see chart), with Bhushan Steel Ltd, Monnet Ispat and Energy Ltd, and Amtek Auto Ltd having fallen sharply.

Minority shareholders may think they are getting a raw deal but that’s incorrect. Under insolvency, all shareholders stand in the same dock, accused of owning a company that has defaulted on its debt. The size of shareholding is immaterial. Maybe the promoters ran these companies into the ground, but that is in their capacity as managers—with designations such as MD or CEO and so on. Insolvency draws a clear line between shareholders and managers.

The Electrosteel case is unlikely to be an exception and retail investors are better off not hunting for bargains here. Missing the odd multi-bagger is better than getting clobbered in this fashion.

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