Essar to borrow $5 bn from overseas mkt

NEW DELHI: Essar group is in talks with international bankers to raise about five billion dollars (over Rs 20,000 crore) by leveraging its 33 per cent stake in Hutch-Essar, the country's fourth-largest mobile player in which UK's Vodafone recently acquired majority stake.

The borrowing would be made by Essar Global, the overseas arm of Essar Group, and the funds would be used for financing the recent acquisitions of steel plants in Trinidad and Tobago, Canada, USA and building power plants.

Essar Group, through its domestic companies and global subsidiary, may require about 8 billion dollar (over Rs 32,000 crore) to fund the acquisitions and expansion into power sector, sources in the know of the development said.

When contacted, an Essar spokesperson declined to comment on company's plans to raise funds.

Essar owns 33 per cent stake in Hutch-Essar, in which Vodafone bought the stake of Hutchison Telecom International for 10.9 billion dollars. Essar had negotiated with Vodafone to sell its stake to Vodafone for up to five billion dollar, subject to regulatory approvals.

"Essar will have certain liquidity rights including, between the third and fourth anniversary of completion, and subject to regulatory requirements, an option to sell its 33 per cent stake in Vodafone-Essar to Vodafone for 5 billion dollars," the two companies had recently said.

On this basis, Essar is negotiating a lower rate of interest for raising up to five billion dollars from overseas market, the sources said.

Sources said Essar Global was in talks with various global bankers including BNP Paribas, Citibank, Standard Chartered, ING, Royal Bank of Scotland and UBS. The sources, however, did not give any timeframe for raising the funds.

The Group, through its overseas arm Essar Global had in April agreed to buy Canada's Algoma Steel for about 1.58 billion dollars in cash and the deal is expected to close this month, the company had said.

This acquisition is likely to be instrumental in the global expansion plans of Essar, which also signed a deal in February with two Vietnamese firms to build a 527-million dollar hot-strip mill plant.

After Algoma, the group had also announced signing an agreement with iron ore-rich Minnesota Steel LLC in the US for an estimated 80-90 million dollars (Rs 350-375 crore).

Essar Global Ltd through its subsidiary Essar Steel Holdings inked the pact with Minnesota Steel and had announced an investment of 1.65 billion dollars to set up a 2.5 million tonnes integrated steel plant.

Besides these acquisitions, Essar Group is also in the process to expand capacity at its Hazira plant and is looking at setting up power plants in Chhattisgarh.

The borrowing may be used to fund these expansion plans and acquisition of firms overseas, the sources said.