Financial institutions are likely to take a hit of only around Rs 75 crore if the restructuring of the steel companies is passed in the corporate debt restucturing meeting on Tuesday.

The three steel companies -- Essar Steel, Jindal Vijaynagar Steel Ltd and Ispat Steel -- have a total debt of around Rs 20,000 crore (Rs 200 billion), which the financial sector is looking at restructuring.

According to steel industry sources, the FIs and banks will take a hit of Rs of Rs 30 crore (Rs 300 million) on account of JVSL, Rs 27 crore (Rs 270 million) on Essar Steel and Rs 20 crore (Rs 200 million) on Ispat. This is following write off of penal interests.

The steel companies are unhappy as there is no provision of pre-payment of debt and the interest rates on the both the domestic debt (14 per cent) and the foreign loans (8 per cent) are very high.

"In all probability banks and FIs will have to go in for one more restructuring exercise again after a gap of three-four years if the falling interest rate regime continues," admitted a senior institution official.

The average cost of borrowing for the companies after the restructuring will be around 11 per cent.

The FIs are looking at increasing the tenure of the loans from 8 to 14 years and converting 40 per cent of the debt into equity.

Of the remaining loans, 20 per cent will be converted into foreign currency loans at 8 per cent rate of interest.

Banks and FIs are also looking at converting the excess compound interest into zero coupon bonds - Rs 250 crore for Essar Steel, Rs 172 crore (Rs 1.72 billion) for JVSL and Rs 140 crore (Rs 1.4 billion) for Ispat.

The promoters will be required to pledge shares in dematerialised form to the lenders to the extent that the lenders hold at least 60 per cent of the equity of the three companies.

All the companies will also have to Trust and Retention account (T&R account) with designated bank and escrow all its cash flows into the account.

The lenders have also asked for personal as well as corporate guarantees of the promoters as a precondition to the debt restructuring.

The lenders have also a provision for accelerated repayment. In other words, whenever the cash flow of the companies improves, they will be asked to clear their dues by paying bigger instalments.