The feud in the Bajaj family has taken its toll on Mukand, the steel company promoted jointly by the Bajaj and Shah families.

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

This is the first time that the disagreements in the Bajaj family, in the form of a face-off between Rahul and Shishir, have had an impact on any of their companies. Rahul Bajaj, chairman of Mukand, is out of the country.

Officials in financial institutions said, "We have been informed by the Mukand representatives that it is not possible for them to furnish the personal guarantees of the promoters owing to the ongoing dispute in the Bajaj family."

Confirming the development, Niraj Bajaj, managing director of Mukand, said: "We are in discussions and an amicable solution is expected. We are not in a position to comment more on the issue at this juncture."

Sources close to the Bajaj family said while most of the issues relating to the debt restructuring package had been resolved, it would require some more time to reach a settlement between the promoters and the lenders on all issues.

The lenders have also asked for an additional equity infusion of Rs 100 crore (Rs 1 billion), but the promoters are willing to infuse only Rs 50 crore and have staunchly refused to give any personal guarantees.

Earlier this week, the institutions and banks cleared a Rs 20,000 debt restructuring plan for three steel companies, Ispat Industries, Essar Steel and Jindal Vijaynagar Steel.

The promoters of all three have agreed to furnish personal guarantees. The Mukand promoters have a combined stake of about 41 per cent, which is held through a complex maze of investment companies, jointly and independently owned by the Bajaj and Shah cousins.

Bajaj Auto has a 3.5 per cent stake in the steel maker. Niraj Bajaj declined to give the exact break-up of the holdings of the promoter families.

Mukand's major product line is speciality steel products like wire rods, bars, flats, which primarily find applications in the automobile industry, with Bajaj Auto being its premier customer.

The company slid into the red owing to the recession in the automobile industry and overcapacity in the sector, resulting in margins being hit.

Its problems were compounded by a Rs 320 crore (Rs 3.2 billion) cost overrun while expanding its plant at Gingera, Karnataka, to produce 320,000 tonnes of steel billets. The company's losses stood at Rs 112 crore (Rs 1.12 billion) for the year ended March 31, 2002.

The institutions had proposed a debt restructuring plan, which entailed repayment of debt over 15 years, a two-year moratorium and a total interest yield of about 12 per cent. Further, the lenders were insisting on a ballooning interest rate and sale of assets.

Apart from agreeing to the sale of assets, which could fetch about Rs 400 crore (Rs 4 billion), Mukand was pressing for a repayment tenure of 14 years with an average cost of about 10.5 per cent.

The sources the two sides had reached an agreement in principle on all these issues but the personal guarantee issue scuppered the deal.