"We will await the response of the bondholders. We have also asked the company to submit the profitability projections. It is only after these matters are clarified will the FIs go ahead with the proposed recast package," a senior IDBI official told The Financial Express after the heads of institutions meeting on Thursday. The central issue in Thursday's discussion of the heads of institutions was that if the fresh tranche of loan is approved, it will help the promoters to redeem the $250-million FRN issue.

The FIs had earlier taken an in-principle decision to clear a $104-million restructuring package for Essar Steel. They were also planning to seek personal guarantees of four core promoters-Shashi Ruia, Ravi Ruia, Prashant Ruia, and Anshuman Ruia. However, the bailout package is believed to have fallen through in the absence of a consensus at Thursday's meeting. The package-prepared by Essar Steel's financial advisor Banc of America Securities LLC-envisages a four-year moratorium on repayment. "Essar Steel will be required to clear the loan in 32 instalments commencing from April 2004, if it is cleared," sources said. The Ruias and their associates hold 37 per cent of Essar Steel's equity, while the FIs hold 15 per cent, and the public 48 per cent.

The company has issued a formal notice to its bondholders for purchase of the outstanding notes for cash and exchange of outstanding notes for new notes on "agreed terms" - that is, to exercise the option from December 20, 1999. Essar Steel, which defaulted on the FRN obligation in July, has advised the noteholders to exercise the option by December 20. Based on the response from the noteholders, the company expects to complete the settlement of the FRN issue by January 31, 2000.

The three options offered to the bondholdrs are five-year rollover on an unsecured basis, 10-12 year rollover on a secured basis, and re-purchase option via a fixed-price tender offer at an all-in price inclusive of any accrued interest of $690 per $1,000 note.

The FIs have decided to meet once again before the crucial December 20, 1999, deadline to discuss the future of the company. "The institutions are also awaiting the result of the various financial transactions, including the agreement with the Marathon group of the US to sell 100 per cent equity to the foreign company subject to certain conditions," IDBI sources said.