Veteran banker Uday Kotak has voiced his deepest concern over a growing practice among troubled Indian companies to issue shares on a preferential basis to their creditors — likening it to a magician’s sleight of hand in producing money out of thin air.

Although Kotak did not actually name Vodafone Idea, it was clear that his broadside was directed at the loss and debt-laden telecom company which has decided to issue shares worth ₹2,458 crore to its telecom equipment vendors, Nokia and Ericsson.

“Financial markets create money out of thin air? A model for companies in financial difficulty: issue equity to creditors to repay their debt. If the stock is well traded, the creditor can sell in the market and get paid by investors. What is the story about Peter and Paul,” Kotak asked in his post on X.

The shares of VIL were in demand on Friday after the allotment and it ended up 4.11 per cent at ₹16.73 on the BSE. It closed higher 4.48 per cent at ₹16.79 on the NSE.

Over 110.07 crore shares of VIL were traded on Friday on the NSE up from 73.19 crore shares.

On the BSE, 13.21 crore shares changed hands against 8.20 crore shares on Thursday. Market cap on the BSE rose to ₹1.13 lakh crore from ₹1.09 lakh crore.

The VIL board on Thursday cleared the preferential allotment of up to 166.08 crore shares at an issue price of ₹14.80 per share: with Nokia getting around 102.7 crore shares worth ₹1,520 crore and Ericsson, 63.3 crore shares worth ₹938 crore.

After the issue, the shareholding of Nokia and Ericsson in the company will stand at 1.5 per cent and 0.9 per cent, respectively.

Market circles said a rise in the share price of VIL by more than 100 per cent over the last one year was a key factor behind the transaction.