The new proposal incorporates a three tier plan to restructure the Rs 3,693 crore rupee debt. If accepted, this will substantially reshuffle the shareholding pattern of the company. To be precise, it will result in hiking of the FIs stake from 8 per cent to around 40 per cent, thereby reducing the promoters' stake from 63 per cent to 37 per cent and the public shareholding from 27 per cent to 16 per cent.

As per the proposal, Rs 565 crore of the total debt will be converted into equity. In addition to this, an equivalent amount will be issued as preference shares to the FIs. Further, the company has put up a proposal of bringing down interest rates on the balance debt to 14 per cent, against the weighted average of 18 per cent, according to FI sources.

However, interest rate inflows lost in the process of stabilisation of the project can be recovered by hiking the rate of recovery once the project gets commissioned.

The company also expects its cost of production on per tonne of hot rolled coil to reduce substantially after the pelletisation plant goes into commercial production. The pellets, which otherwise cost the company around Rs 2,400 per tonne, will now cost them Rs 600 per tonne. At present, the company procures the pellets from external sources. The plant which has a capacity of three million tonnes per annum, will provide 1.5 million tonnes for the JVSL's captive use and the balance will be sold to other producers or exported. This is expected to add to the company's revenues substantially.This proposal follows the rejection of the former proposal where the company suggested linking of interest rate on the debt to steel prices. According to FI sources, the plan was not suitable as no lender would like to have business risk incorporated in its return on funds.

The company has also raised $400 million through the external commercial borrowing route that will start flowing 2001 onwards. According to analysts, the company is unlikely to face problems in the foreign currency loan like the rupee debt as the portfolio is well diversified between dollars and euro and depreciation in euro is in excess of depreciation in dollar.