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The mood at Essar House, the gleaming glass-cased headquarters of one of India's top conglomerates in Mumbai, was gloomy. Late in the night of July 19, after a stormy board meeting, the directors of Essar Steel, the flagship of the $4 billion group, admitted that the company would not redeem $250 million floating rate notes that were to mature the next day. In a statement issued to the press, the company said it would seek a 90-day reprieve from investors to come up with a plan to either refinance or reschedule the five-year notes.
Media coverage of the story of the first Indian company to default on its international obligations had the scorching intensity of a countdown to D-day. Weeks of tense, often bitter, negotiations, between the Ruias, the family that owns a controlling stake in Essar, and its principal lenders, a group of domestic financial institutions, were played out in the Indian newspapers. Stories alleged that another company had plotted Essar's downfall and that punters had bought up FRNs (the large discount on the notes had narrowed towards the redemption date) in anticipation of a bailout.