Essar borrowed $250 million by issuing FRNs in New York five years ago; they are due for repayment today. The amount was borrowed by Essar Steel towards the cost of the rolling mill it was building for hot-rolled sheets. Essar Steel already had a sponge iron plant, and going into hot-rolled sheets seemed a good move of forward integration. Consumer durables, notably cars, use cold-rolled sheets, for which hot-rolled sheets are the input; all consumer durable industries were booming in 1994. Since the government had continued the ban on imports of consumer durables, it looked as if the boom in industries producing them would be endless.
Barring a miracle, Essar will default on the FRNs later today. Hence it is now possible to write about the pros and cons of bailing it out without raising suspicions of special pleading. This is important, for this has been a bitter corporate battle. Forces friendly to Essar allege that Reliance has engineered the default by sabotaging every attempt at raising finance within the country. Forces friendly to Reliance deny this, and say that Essar's financial troubles are of
