Debt overhang is a situation in which a company (or country) carries such a large existing debt burden that it is unable to raise additional capital to fund new value-creating investments — because the expected returns from new projects would primarily accrue to existing creditors (to service the outstanding debt) rather than to new investors or shareholders, making new financing economically unattractive. Debt overhang creates a financial trap: the company is too indebted to invest in growth but cannot deleverage fast enough to escape the burden without restructuring. At the sovereign level, excessive public debt can create debt overhang that crowds out private investment and slows GDP growth. The concept was formally analysed by economists Stewart Myers (1977) and Krugman (1988). For analysts and investors on Ventura Securities evaluating highly leveraged Indian companies — particularly in infrastructure, real estate, telecom, and power sectors — identifying debt overhang situations is critical for assessing whether a company's capital structure is impairing growth investment, creating restructuring risk, and suppressing equity value even when underlying assets may be sound.
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