ESL raised the FRNs at 265 bps over Libor in 1994. The company defaulted in July last year, when the notes matured for repayment.

The company is convening a meeting of FRN holders in London in June to formally put this proposal before them for their approval. Note-holders accepting this option will, however, continue to remain unsecured creditors in the company's books. The five-year rollover will be the only option provided to the noteholders.

Confirming the move, Essar director (finance) SV Venkatesan told The Financial Express: "We are in talks with the FRN-holders. The five-year rollover option is once again being put forward at the London meeting."The revision in the rate of interest, if accepted by the noteholders, will raise the cost of borrowing on the FRNs to over 10.5 per cent. The six-month US dollar LIBOR is currently ruling at 7.06 per cent.

The five-year rollover formed part of a bail-out package prepared by Banc of America Securities (BA Securities), the company's financial advisor to resolve the FRN issue last year. The proposal was, however, rejected by a large majority of noteholders.

Subsequently, BA Securities' package suggested three options to all noteholders: to rollover the loan by another 12 years, with secured creditor status to the holders, extending the maturity by five years on an unsecured basis and an exit route to creditors at a 31 per cent discount to the face value of the notes.

ESL has till date failed to repay creditors, who had opted for the third option. The repayment to the third category of creditors envisaged re-purchase via a fixed price tender offer at an all-in price inclusive of any accrued interest of $690 per $1,000 note.

This option was accepted by a majority of 65 per cent creditors at the last noteholders meeting held in December last year. But the refusal by domestic financial institutions led by the Industrial Development Bank of India (IDBI) to extend any further loans to ESL, till all outstanding dues including interest liability are repaid by the company put a spoke in the deal.

As a result, the creditors remain unpaid till date with no final resolution to the issue.

Out of those who opted for extending the maturity of the loan, 16 per cent agreed for a 12 year rollover, with remaining 19 per cent opting for five year extension. According to industry sources, Indian banks, which have a $40 million exposure to the notes were among those who opted for the 12 year rollover.

The company claims to already deposited the interest rate component payable originally to the note-holders with Bank of America in an escrow account.