It is believed that Essar Steel is likely to seek a three-month rollover from the bond-holders. The temporary breather will give the company time to execute several fund mop-up plans.

FIs had earlier suggested to Essar that the roll over could be the way out from the impasse, but the group had appealed to the institutions to reconsider the view. The institutions are yet to decide on the issue. An Essar official said that the assistance sought from the FIs would be a substitution of a debt and not an additional debt contracted.

The proposal was based on merits as well as within the norms of the FIs and the company has been found to be viable by the institutions and international consultants like Bedows, hesaid.

Essar Steel had earlier put forth a proposal to financial institutions for raising around Rs 300 crore through a rights issue of equity shares. The institutions are yet to get back to the company with their response. The issue was proposed to bridge the gap for the company's $250 million FRN redemption which the institutions have refused to bail out.

Essar Steel currently has a paid-up capital of Rs 330 crore on an authorised capital of Rs 500 crore. The Ruias have already signed an agreement to sell the group's entire stake in Essar Power, the 515 mw power company, to Marathon Power of US for Rs 720 crore. The deal is expected to be completed by end-August.

By virtue of Essar Steel 42 per cent shareholding in Essar Power, the sale will fetch the steel company around Rs 310 crore. The sale of 51 per cent stake in Essar Minerals to Stemcor of US is likely to fetch another Rs 180 crore.

The sale of stake in Essar Power and Essar Minerals will take off around Rs 1,000 crore of debt from EssarSteel's books. The financial institutions currently have an exposure of Rs 2,550 crore in the group flagship. It appears that even after the rights issue, and if the sale of stake goes through, the gap between the total amount required for redemption and what Essar Steel can raise will be Rs 285 crore.