The company said through Chase Manhattan, the trustees to the issue, it had informed noteholders that it will look at alternate means to either refinance the FRNs or extend the maturity of the notes during the period.

It also said it proposes to pay the interest due on the FRNs shortly. However, the company has to receive consent from at least 75 per cent of the noteholders for the roll-over.

It is believed that Essar Steel may yet again submit a fresh proposal to the domestic financial institutions (FIs) for refinancing the FRNs. While earlier it was seeking 100 per cent refinancing, following the rejection from FIs, it later sought only 50 per cent refinancing which was again rejected.

It is learntthat as the concept of take-out financing was gaining popularity in the country, Essar Steel is also weighing the option of refinancing through this route. Infrastructure Development & Finance Corporation (IDFC) has been specialising in this area in the country.

FIs, while rejecting the company's refinancing proposal, had asked the company to extend the maturity of the FRNs for another five years.

In such an event, the company, which had contracted the FRNs at a coupon of 260 basis points above Libor, may have to renegotiate the coupon on the extended paper and settle for a higher rate.

The Financial Express had reported on June 30 that Essar Steel would seek approval of noteholders to roll-over the FRNs for another three months.

The company can press for a five-year extension of the maturity, as steel prices are expected to firm up to around the $300 a tonne levels. This will mean a higher price realisation for the company and easing of presure on its interest charges and, hence, thebottomline.

Though internationally, the borrowing norms for steel companies indicate a higher maturity profile for debt of around 12-15 years, Essar was forced to borrow with a tenor of five years as per the then finance ministry guidelines.

Essar Steel was, however, hit by historically low international steel prices, resulting in lower realisations for the company. From around $400 a tonne when the company's project was being implemented, it fell to around $180 a tonne in end-1998.

Also, the company's plan to securitise export receivables and raise around $300 million to redeem the FRNs fell through following the US sanctions on India following the Pokhran episode.

The company has said that it compares favourably with other international steel producers in terms of equipment condition, operational efficiency and operational costs.