ESSAR Steel has approached all its creditors including the FIs and FRN bond holders for a 'standstill' agreement on repayments for a limited period - which would mean that all repayment obligations of the company to its creditors will be deferred for this period.

The standstill agreement has been sought as part of the company's decision to prepare a fresh financial and business re-engineering plan for turning around the company on a long-term basis.

Essar Steel has recently hired KPMG for preparing the financial as well as business restructuring package.

According to sources, the proposal on the standstill agreement has been made at a meeting of the company top executives, the trustee and its creditors held in Mumbai in the second week of this month.

It was also proposed to form a 10-member steering committee, comprising representatives from various classes of creditors to assist the consultant in preparing the proposed restructuring package.

The proposed steering committee is to include one representative each from IDBI, ICICI and UTI (representing secured Indian lenders), one representative each from Bank of America and Union Bank of Switzerland (secured offshore lenders), one member each from SBI, PNB and BoI (Essar's working capital consortium) and one representative each from BNP and bond holders (unsecured creditors).

The immediate fallout of the proposed standstill agreement would be that the company would be deferring the interest payments to the FIs, the FRN bond holders and other major creditors till the time the new package is put in place, after being approved by all classes of the company's creditors.

KPMG is expected to finalise the package in two-three months.

Essar Steel, which rolled over its $250 million FRN last year, has been making quarterly interest payments to the bond holders who opted for this scheme. "We have paid the bond holders interests till the last quarter.