Jindal Vijaynagar Steel, Ispat Industries and Essar Steel -- which had their debt restructured early this year -- are now exploring the possibility of raising overseas loans to bring down their interest costs further.

The combined size of the external commercial borrowing could be above $650 million.

Institutions and banks will give guarantees to help these companies borrow cheap from the overseas market.

Investment bankers involved in the deal said the three steel companies could borrow at around 150-200 basis points over the London Interbank Offered Rate (Libor) on the back of these guarantees.

Since six-month Libor is ruling at around 1.18 per cent, the all-in cost, including the gurantee commission, may work out to 5.5-6 per cent.

This will enable the companies to cut interest costs by a good 8 percentage points as they now pay 14 per cent on their rupee liabilities.

These companies do not need to hedge their ECBs as all of them have strong export earnings.

Banks and financial institutions restructured Rs 20,000 crore (Rs 200 billion) of these steel companies' debt.

Around 40 per cent of the debt was converted into foreign exchange loans at 8 per cent, 55 per cent was restructured as rupee loans at 14 per cent while the remaining 5 per cent of debt was converted into equity.

JVSL and Ispat are looking at around $225 million ECBs each while Essar Steel plans to raise over $200 million.

The finance ministry is clearing high ticket ECBs on a case-to-case basis as the government is not encouraging Indian companies to borrow overseas.

"The steel companies are a special case and the government may clear their plans," said a source.

ICICI Bank and State Bank are likely to offer them guarantees. ICICI Bank is planning to offer guarantees for the portion of the loans which these companies owe to the  bank.

It could be a 100 per cent financial guarantee or a limited recourse guarantee or a guarantee that would expire after the achievement of certain milestones.