Banks and financial institutions are expected to meet this week to clear a restructuring package for three steel companies, Essar Steel, Jindal Vijayanagar Steel and Ispat Industries.
The package will include a reduction in the interest rate on term loans to 14 per cent from the present 17-18 per cent as also a conversion of 40 per cent of the loans into foreign currency loans carrying an 8 per cent interest rate.
The move follows a decision taken at a meeting on restructuring the liabilities of the three firms convened by Finance Secretary S Narayan on January 2.
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The meeting was attended by the chiefs of ICICI Bank, IDBI, State Bank of India and IFCI, with the finance ministry convincing the lenders to restructure the debt.
The corporate debt restructuring forum is scheduled to discuss the issue on January 8.
Banking officials told Business Standard that with this reduction in interest rate, the average cost of term loans would come down to around 12 per cent.
In addition to reducing interest rates, the lenders agreed to a conversion of the overdue interest into zero-coupon bonds. These bonds, the officials said, would be redeemed in three tranches from the ninth year onward.
The steel companies on their part will be asked to pledge a part of their equity. The sources also said the benefit of conversion into foreign currency loans would be available to steel companies exporting a part of their produce.
They said banks and institutions need not go in for additional foreign currency borrowings to convert the debt of steel companies into foreign currency loans because they had sufficient borrowings.
The banking officials added that the entire restructuring package would be implemented by the end of the current financial year.
The restructuring had been discussed at the corporate debt restructuring forum earlier, which provided a three-month timeframe to hammer out the package.