The case examines the financial crisis faced by Essar Steel (Essar), the leading Indian sponge iron manufacturer and the flagship company of the Essar Group, during the late 1990s and the early 21st century. It discusses how the company issued Floating Rate Notes (FRNs) in the mid-1990s to finance its Hazira HRC plant and examines in detail the reasons why it defaulted in repaying the FRN-holders on the maturity date. The case critically analyzes the measures taken by the company to come out of its financial problems, the role of the FIs and the promoters.

In July 1999, Essar Steel (Essar), the leading Indian sponge iron manufacturer and the flagship company of the well-known business house, the Essar Group was facing a severe financial crisis. Essar earned the dubious distinction of becoming the first Indian company to default in honoring its international debt repayment obligations. The company failed to repay its Floating Rate Notes (FRNs) worth $250 mn issued to foreign investors. These had matured on July 20, 1999. Analysts claimed that this development could seriously hamper the credibility of Indian companies and Indian paper in the international debt markets.

Essar's parent organization, the Essar Group was engaged in various businesses including power, telecom, shipping, oil and iron and steel. Essar was the second largest private sector steel manufacturer in India (TISCO is the largest). The history of the Essar Group dates back to 1956, when its founder, Nand Kishore Ruia (NKR) began undertaking independent contract works (mostly in the construction and shipping businesses) under the name of Essar Construction and Carriers Ltd. In 1969, after NKR's demise, his brothers Shashi Ruia and Ravi Ruia took over the business responsibilities. During the 1970s and 1980s, the company diversified its operations by entering into the power, steel and oil businesses. Over the years, the Essar group continued to grow in related fields i.e., offshore construction, pipeline laying, contract drilling and marine transport.

Essar Steel (Essar), financial crisis, flagship company, Essar Group, Floating Rate Notes (FRNs), FRN-holders, financial problems, international debt markets, Indian companies and Indian paper, Essar's parent organization, power, telecom, shipping, oil and iron and steel, private sector steel manufacturer, contract works, Essar Construction and Carriers, offshore construction, pipeline laying, contract drilling and marine transport.