The group recently bought two steel plants in Canada and the US for $3.2 billion and committed $4 billion in Egypt to set up a refinery and steel plants. It is hunting for more global assets.
Sources close to the development said the group has appointed banks to advise it on assigning its one-third stake in India's fourth-largest mobile service provider.
"The fund-raising proposal will put the financing at a loan-to-value ratio of 82 per cent, which is quite high for a deal backed by shareholding in an unlisted company," a banker said.
The attempt also reflects the buoyancy in the domestic telecom industry. "It shows that the Essar group is certain about the rising valuation of its holding in Hutchison-Essar before it exercises its put option," the banker added.
On the basis of the acquisition cost paid by Vodafone, which recently acquired Hong Kong-based Hutchison's 52 per cent stake, Essar's holding in Hutchison-Essar is valued at $5.46 billion.
When contacted, an Essar spokesperson said, "As a policy, we do not comment on financial details."
An agreement between Vodafone and Essar gives the latter the option to sell its one-third stake in Hutchison-Essar to Vodafone after three years. Essar also has the option to sell between $1 billion and $5 billion worth of Hutchison-Essar shares to Vodafone at an independently appraised value.
The decision by Essar to monetise its Hutchison-Essar stake follows the government approving this month the sale of Hutchison's majority stake in the company to Vodafone, almost three months after the initial agreement.
This delay was a result of controversies over a 15 per cent holding by Hutchison-Essar Managing Director Asim Ghosh, healthcare major Max's Analjit Singh and financial institution IDFC.
The stake, financed by Hutchison, was counted as part of the foreign shareholder's "economic interest". Lawmakers raised questions -- now resolved -- over whether this structure violated the 74 per cent limit on FDI in telecom services.
The complication arose because 22 per cent of Essar's shareholding is held by foreign entities abroad and therefore comes under the FDI limit. Taken together with Vodafone's 52 per cent stake and the indirect 15 per cent stake, this would have taken the foreign holding to 89 per cent.
Accordingly, banks appointed by Essar will not pledge more than 22 per cent with foreign entities and the remaining 11 per cent will go to domestic institutions, so that the FDI limit is not breached.
