In case it fails to get an institutional nod for the loan over the next few weeks, Essar Steel will be left with no choice but to hold a bondholders' meeting in New York and press for a rollover of the FRN, industry sources said.

The original plan was to strike a $300 million export securitisation deal with German steel giant Thyssen and use the proceeds to redeem the FRN.

But with the State Bank--Essar Steel's lead banker--putting its foot down against providing an export performance guarantee, the deal is likely to fall through. However, Essar's consortium of banks has in principle agreed to raise the working capital limit of the company. Essar Steel's present working capital limit is pegged at aroundRs 800 crore.

According to sources, Essar Steel recently put up a proposal for an "exposure-neutral transaction" before the IDBI. The proposal envisages bringing down the financial institutions' exposure in Essar Steel by selling its stake in Essar Power (where also the institutions have an exposure) and offloading its 30 per cent stake in Essar Mineral Ltd--the pelletisation project--in favour of strategic partners.

"By selling the stake in Essar Power alone, Essar Steel will be able to bring down the institutional exposure by Rs 1,000 crore. It will go down further when the company is able to identify a joint sector partner for Essar Minerals. Against this, Essar Steel is seeking a long-term loan with an average maturity of seven years from the institutions to redeem the FRN," sources close to the company said.

The Ruias are at an advanced stage of negotiation with Enron Corporation and Marathon of the US to divest holdings in the 515 mw Essar Power where Essar Steel holds 42 per cent, Essar Oil nineper cent and Prime Hazira 49 per cent.

"We have decided to sell off the combined stake of Essar Steel and Essar Oil which will give the new promoters management control. We may even consider selling off the entire stake (through Prime Hazira)," company sources said. The deal is likely to fetch Essar Steel about Rs 300 crore, plus the Rs 200 crore subordinate debt that will be passed on with the deal.

The Ruias are also negotiating with the National Minerals Development Corporation (NMDC) and a global trading major to strike a strategic alliance whereby both the companies will jointly pick up about 30 per cent in Essar Minerals Ltd, leading to an infusion of Rs 188 crore into Essar Steel. At a later stage, the Ruias are expected to make a further divestment in the pelletisation project.

However, with neither of the deals likely to be struck over the next few weeks, the company will have to push for a rollover of the $250 million FRN in case the new proposal does not find favour with the institutions. TheEssar Steel FRN is currently trading at a 30 per cent discount to the issue price.

The other option before the company is to arrange for a bridge loan till the sale proceeds of Essar Power and the pelletisation project are realised. "The company may opt for partial redemption and partial rollover of the FRN," sources said.

In April, Essar Steel rolled over a $40 million foreign currency loan for a period of three months. "It is again due for redemption in June. The company is planning to refinance the facility through an external commercial borrowing supported by the guarantee of a US-based export insurance company," sources close to Essar said.

The Essar game plan

* Sell 51% stake in Essar Power to Enron or Marathon

* Divest 30% stake in Essar Minerals to NMDC and a trading MNC

* Redeem $250 m FRN through fresh institutional loan

* Reduce Essar Steel's debt by around Rs 1,200 crore

* Push down debt-equity ratio to 1.6:1