VCCircle

The Essar Group is raising a huge debt of $3.59 billion against its 33 per cent stake in Vodafone-Essar. This is considered the largest debt raising against shares by an Indian company. The company plans to use the capital to lower borrowing costs and to fund investment for the group companies. The group had made two steel acquisitions in Canada and the US for $3.2 billion. It has also committed $4 billion in Egypt to set up a refinery and steel plants. So the group needs capital.
Essar Communications India Ltd (ECIL), the wholly owned subsidiary of Essar Global, has hired four banks to raise debt - Standard Chartered Plc, Commerzbank AG, BNP Paribas SA and Citigroup Inc. Standard Chartered has underwritten 35 per cent of the total loan amount, Commerzbank 25 per cent, BNP Paribas and Citigroup 20 per cent each. The Essar group will pay an interest of 0.9 per cent over London Interbank Offered Rate (Libor) on the loan. The loan has a maturity date of 8 December 2011. Based on Vodafone's acquisition cost, Essar's holding in Hutchison-Essar is valued at $ 5.46 billion.
ECIL is a non-resident company that indirectly holds nearly 16 per cent in Vodafone-Essar. The government has approved the plans to raise debt. According to Business Standard, the government approval has come, although the RBI and the finance ministry had differences over the issue. RBI had initially rejected ECIL's proposal to raise loan as that would result in the transfer of equity holding from a resident entity to a non-resident entity and could violate the 74 per cent foreign direct investment (FDI) limit on telecom service providers. The ministry had said there was no specific provision of law that prohibits such a transaction.