Top level FI sources said the meeting will consider various options to redeem the $ 250 million FRN issue which was floated in the overseas markets in July 1993. The bail-out has become essential as the FRN is currently trading at a 30 per cent discount to the issue price.

``Essar Steel has applied for a loan package from institutions to redeem the FRN issue. If the loan package does not work out, then the company will have to roll over the FRN redemption. However, foreign investors may not like the idea of a roll-over,'' said a corporate source.

Industrial Development Bank of India had earlier ruled out extension of any guarantee to Essar to raise fresh market borrowings to refinance the existing FRN issue. The current exposure of the financial institutions in Essar Steel, inclusive of guarantees,is to the tune of Rs 2,391 crore.

``In case Essar Steel is not able to raise the export performance guarantee, it will default in the FRN redemption. A corporate defaulting in its foreign debt repayment is not unusual. It will not be considered as a sovereign default," sources said.

State Bank of India has earlier decided against extending full export performance guarantee to Essar Steel. The company has asked for export performance guarantee from the SBI as it has been able to arrange for $75 million worth of guarantee from the Export Credit Guarantee Corporation (ECGC). On the strength of the guarantee, Essar Steel has been planning to strike an export securitisation deal with the German steel giant Thyssen AG.

According to the plan, the proceeds of the securitisation deal will then be used to redeem Essar Steel's floating rate notes due in July.