From Bombay to Wall Street: Dequity and the Ghost of Convertible Debentures Past
Are Dequity and Indian convertible debentures cousins across time? Absolutely. But they are separated by scale, purpose, investor profile, and structural finesse.
By Karan Bir Singh Sidhu
Retired IAS Officer, Punjab Cadre | Former Special Chief Secretary, Punjab
Served on the Boards of numerous Central and State PSUs, with deep insight into regulatory design and institutional governance
Strategic commentator on public finance, private capital, and institutional reform
Avid student of the Indian and U.S. stock markets.
Dequity and the Ghost of Convertible Debentures Past: When Finance Repeats Itself
In a recent piece titled Exit Equity; Enter 'Dequity' on the Global Stage, we examined the rise of Dequity—a hybrid instrument that is helping private equity firms navigate a severe liquidity crunch. Yet as this innovation gains traction on the global stage, seasoned observers may experience a sense of déjà vu. After all, India in the 1980s and 1990s saw the widespread use of a remarkably similar hybrid: the convertible debenture. Are we witnessing a reinvention of the same wheel—this time with greater polish, structural discipline, and regulatory maturity?
Debt into Equity: An Old Idea Wearing New Clothes
Convertible debentures in India allowed companies to raise money through debt instruments that later morphed into equity. Like Dequity today, these tools offered lower interest rates for issuers and upside participation for investors. But the similarity ends there. The Indian model was riddled with regulatory uncertainty, conversion ambiguity, and governance blind spots—features that today's Dequity instruments intentionally avoid.
Reliance and the Debenture Era: Dhirubhai's Theatre of Finance
Reliance Industries was the undisputed maestro of India’s convertible debenture wave. From the iconic “G” Series of 1986 to the blockbuster RPL issue of 1988, the group turned financial structuring into a form of corporate performance art.
The 1986 issue stirred controversy with mid-course corrections in conversion terms, prompting lawsuits and regulatory scrutiny. In contrast, the 1988 Reliance Petrochemicals offering was a runaway success, demonstrating how structured hybrid offerings could tap into mass investor appetite, even in a nascent capital market.
Yet beneath the headlines and subscription records lay a web of peculiarities and disputes that marked this period. The most contentious was the 1986 “G” Series debenture issue, initially valued at Rs 400 crore. Investors were promised specific conversion benefits, but when Reliance's share price declined sharply after adverse press coverage, the company altered the scheme significantly. The conversion premium was reduced, categories like debenture-holder reservations were scrapped, and rights reserved for shareholders were diluted. These mid-stream changes provoked legal action from shareholders who felt blindsided by shifting terms that favoured the promoter's position.
A deeper concern was the regulatory fluidity of the time. Conversion terms were often left unspecified and subject to later determination by the Controller of Capital Issues. This created asymmetry of information and risk, where companies retained control over critical outcomes while retail investors operated with limited foresight. Debentures were frequently compulsorily converted, denying investors the option to hold debt—effectively transforming these hybrids into backdoor equity placements, sometimes without market-based valuation anchors.
Despite these controversies, Reliance continued to use the convertible debenture as a tool of financial innovation. Annual reports through the 1980s reveal a string of series—“H,” “J,” and “K”—each featuring distinct combinations of conversion mechanics, secured obligations, and detachable warrants. These instruments did more than raise funds—they shaped the architecture of India’s equity culture and demonstrated how strategic financial engineering could build corporate empires.
Dequity's Calm Precision: The Private Markets Version
Modern Dequity avoids the retail fray altogether. Designed for institutional investors, it is a product of bilateral negotiation, not mass subscription. Its terms are pre-agreed, conversion mechanics predictable, and its purpose laser-focused: providing liquidity to private equity sponsors trapped in extended holding periods.
Where Indian convertible debentures were used to fund capex-heavy expansion, Dequity is more tactical—used to plug gaps in liquidity cycles without compromising long-term asset control.
Structural Contrasts: From Compulsion to Customisation
In the Indian model, conversion was often compulsory, and terms were left to be decided by a government authority post-issuance—a practice that generated significant valuation headaches. Investors bought into instruments without knowing how—or at what rate—their debt would convert to equity.
Dequity, by contrast, reflects a maturation of this concept. The structure is negotiated with precision, often including covenant flexibility, tailored repayment schedules, and equity-like upside. It’s a bridge, not a black box.
From Retail Spectacle to Institutional Engineering
Reliance’s debenture issues were national events, drawing in millions of retail investors. They helped democratize equity ownership in India but also exposed the limitations of retail-driven hybrid instruments in an underdeveloped regulatory ecosystem.
Dequity is no such spectacle. It is a boardroom conversation between private equity sponsors and direct lenders, negotiated in spreadsheets and legal clauses, not newspaper headlines. The scale may be similar—Dequity has already touched the $30 billion mark—but the market mechanics are completely different.
Valuation Complexities: Then and Now
The Indian convertible debenture era was plagued by valuation opacity, especially when conversion terms were left ambiguous. Financial models struggled to price them accurately, given regulatory overhang and speculative sentiment.
Today, Dequity faces its own valuation puzzles, but these stem from the nature of private assets—not regulatory fog. Questions revolve around NAV estimates, cross-collateralisation, and portfolio quality, not bureaucratic discretion.
A Maturity Curve in Hybrid Finance
Dequity’s sophistication represents not just innovation, but evolution. The shift from mass-market compulsorily convertible debentures to bespoke institutional dequity deals tells a story of how financial instruments grow up. Governance improves. Structuring deepens. Risk is shared more intelligently.
India's convertible debenture wave walked so global Dequity could run.
In Summary: An Echo, Not a Repetition
Are Dequity and Indian convertible debentures cousins across time? Absolutely. But they are separated by scale, purpose, investor profile, and structural finesse.
The Indian experience—especially the audacious Reliance experiments—taught us that hybrid instruments could work, but only with trust, transparency, and structure. Today's Dequity instruments are delivering on that promise, free from the ghosts of regulatory ambiguity that once haunted their Indian predecessors.
Finance, like theatre, thrives on reinvention. What was once a spectacle played out in Indian boardrooms and stock exchanges is now being reprised—refined, reimagined—on the global stage.
