The Bajaj and the Shah families, promoters of steel firm Mukand, have to pay a price for their ongoing family feud. The promoters, unwilling to furnish personal guarantees for loans because of the tiff between Rahul and Shishir Bajaj, have been asked by the financial institutions to pay Rs 50 crore (Rs 500 million) as an alternative.

Mukand is finalising an amended restructuring package prepared by the lenders. According to the plan, the promoters will pay Rs 50 crore over the next six months. This would allow the company to do away with the lenders' condition asking for personal guarantees as per the previous debt restructuring package, institutional sources said.

"We are not in a position to comment on the issue. We are finalising it, and we hope it will soon be amicably resolved," Niraj Bajaj, managing director of Mukand, said.

Confirming the development, sources close to the Bajaj family said negotiations with the financial institutions had been going on for some time. The group was previously not willing to pay the amount because it felt the demand was against the logic of a limited liability company and that it was unfair to charge the promoters of a public limited company.

The lenders' consortium had rejected Mukand's Rs 1,300 crore (Rs 13 billion) debt restructuring proposal when the promoters failed to furnish personal guarantees.

Mukand's promoters have a combined stake of about 41 per cent, held by a number of investment companies jointly and independently owned by the Bajaj and the Shah cousins. Bajaj Auto has a 3.5 per cent stake in Mukand.

Mukand's major line is speciality steel products like wire rods, bars and flats, which are primarily used in the automobile industry. Bajaj Auto is its premier customer. The company slipped into the red because of a recession and overcapacity in the automobile industry, which affected margins.

Its problems were compounded by a Rs 320 crore (Rs 3.2 billion) cost overrun in the expansion of its plant at Gingera, Karnataka. The plant was supposed to produce 320,000 tonnes of steel billets.

Mukand registered a loss of Rs 112 crore (Rs 1.12 billion) in 2001-02. The financial institutions had earlier proposed a debt restructuring plan entailing repayment over a period of 15 years, a two-year moratorium and a total interest of about 12 per cent.