Shareholders of erstwhile Indosolar were in for a pleasant surprise last week. Those who thought their investment had vanished saw the stock rise like a phoenix.

Indosolar was acquired by Waaree Energies through the Corporate Insolvency Resolution Process (CIRP), which began in 2019. The company had accumulated a debt of ₹2,138 crore. The National Company Law Tribunal (NCLT) approved Waaree Energies’ resolution plan worth ₹189.79 crore, which included a settlement to financial creditors (₹90 crore), employee wage dues, operational creditor payments, and fresh infusion towards capex and working capital (₹95.20 crore).

Capital erosion

However, as per the approved resolution plan, the company’s existing paid-up capital of 37.20 crore shares of ₹10 each was reduced to just 37.2 lakh shares — effectively reducing 100 shares into one. This meant that a holding of 100 shares worth ₹925 in the old Indosolar was slashed to ₹173 on listing day (June 19), marking an over 80 per cent erosion in capital.

Since then, the loss has narrowed considerably as the stock has been hitting the upper circuit ever since its relisting under the new avatar “WaareeIndo.” It is currently trading at ₹232.22. After the Waaree takeover, Indosolar’s fortunes also improved: the formerly loss-making company posted a net profit of ₹9.48 crore for Q3 of FY25.

Post-CIRP rallies

There have been several instances where companies emerging from CIRP witnessed massive rallies in their stock prices despite capital reduction. Ruchi Soya, acquired by Patanjali Foods, jumped from ₹17 in 2020 to ₹2,030 at its peak and is currently trading at ₹1,631.15 on the BSE. Similarly, shares of Orchid Pharma, which were relisted in November 2020 after being taken over by Dhanuka Labs, soared from ₹18 to over ₹2,500 before settling around ₹700.

One major reason for such dramatic price movements is low float. Typically, new promoters own over 95 per cent of the equity, leaving limited shares available to the public. In WaareeIndo, the promoter holding stands at 96.15 per cent. It is interesting to note that the stock has hit upper circuits despite trading volumes of fewer than 100 shares.

Key amendment

This consolidation of equity was made possible after SEBI made a key amendment in 2018 regarding corporate debt restructuring. The amendment allowed resolution applicants acquiring listed companies through CIRP to hold more than 75 per cent of share capital, earlier restricted due to the minimum 25 per cent public shareholding norm. This paved the way for consolidating existing distressed company share capital.

Another SEBI amendment allowed new promoters to offer an exit route to existing shareholders. For instance, Adhunik Metaliks’ new owner, Liberty House, made a delisting offer at ₹0.09849500 per share versus the then-prevailing market price of ₹0.49 and delisted the company. Electrosteel Steels was similarly delisted at ₹9.54 per share.

In the case of Bhushan Steel, acquired by Tata Steel and renamed Tata Steel BSL (TSB), the public shareholding was retained. The company was later delisted when Tata Steel offered one share in itself for every 15 shares held in TSB.

When the Insolvency and Bankruptcy Code (IBC) was introduced in 2016, there was little hope for shareholders of bankrupt companies. Existing shareholder equity was typically extinguished at zero value. In the case of Essar Steel, acquired by ArcelorMittal and Nippon Steel, public shareholders lost all their money.

While cases like Indosolar, Ruchi Soya, and Orchid Pharma offer some hope to shareholders of beleaguered companies, things may not always turn out rosy. It’s wise to avoid herd mentality driven by “fear of missing out” and pay close attention to valuations.

Published on June 27, 2025