FI sources told The Financial Express that the institutions have internally decided not to give fresh loans in risk-prone areas, where they already have taken substantial exposure. Essar Steel had approached the FIs for either issuing fresh funds or standing guarantee to a foreign currency loan.

Sources further said that the institutions feel that Essar promoters should fulfil their financial obligation from the sale proceeds of its different businesses to some overseas or domestic entrepreneurs. The institutions would only look into the restructuring of the current outstanding of the company, they added. In such a case, Essar Steel would be left with little option but to roll-over its FRN. One of the company promoters had, however, said that Essar Steel might have to ask for three months' time to repay thedues.

Sources further stated that the FIs were insisting that groups such as Essar should hive off most of their ancillaries and focus on their core areas.Essar is planning to divest its stake in oil, power and mineral businesses. The group has already sold out its stake in its cell-phone venture. The company is already in talks with foreign companies for the proposed divestment in power and minerals ventures.

Essar Steel is targeting to mop up Rs 500 crore from its proposed 42 per cent divestment in Essar Power and the new company is also expected to take Rs 1,500 crore debt from Essar Steel's books. Further, Essar Steel has also decided to sell off 51 per cent in Essar Minerals Ltd.

Significantly, State Bank of India, whom Essar Steel had approached for a securitisation of export performance guarantee, has also shown reluctance in doing so. This would have enabled Essar Steel to strike a $300 million export exposure securitisation deal with German steel major Thyssen. However, SBI has decided toincrease the working capital limit of the company.

Currently, the company is planning a Rs 1,804 crore pellet manufacturing project at Visakhapatnam. Essar Steel would be setting up a 267-km long slurry pipeline between Bailadila and Visakhapatnam to transport iron ore fine to the 7.8 million tonne pellet project.

FI sources said Essar Steel had also approached them for buying out its FRN from the secondary market at the prevailing market price and roll it over after taking the exposure on their books. The FRNs are presently quoting at discounts of over 30 per cent to the issue price.

But the sources said this option would also not be feasible as it would amount to taking an exposure in the company.

Insight

Pressure on promoters

Time is running out for Essar Steel as far as its outstanding obligations are concerned. The FIs have been doing the right thing by keeping up pressure on the promoters of the Essar group to meet its financial obligations to its creditors.

What Essar Steelhopes to do is increase the FIs exposure to itself in order to help it from other pressing creditors. The FIs are right in not allowing this as they also have been taking a stand against such groups where promoters are being made to increase the financial stake in their companies and are asking them to bring back the cash and assets that have been moved out of the company, either as other investments or loans to corporates etc.