Essar arm to raise Rs 4,500 crore through bonds

ETHL leverages Vodafone-Essar stake to access funds

Ruia family-controlled Essar Group today started a book-building process to raise up to Rs 4,500 crore by issuing zero-coupon debentures.

Two sets of debentures, with maturity in December and July, are proposed to be issued to raise funds for the group’s overseas expansion.

While the issue size was Rs 2,250 crore each, ETHL Communications Holdings (ETHL), which holds part of Essar group’s stake in Vodafone Essar, could also exercise a green shoe option, said sources close to the development. ETHL hold a 10.97 per cent stake in Vodafone Essar, the country’s third-largest mobile phone operator.

“The issue would be sold through two transactions. The bonds will mature in July 2011 and December 2011,” said a source familiar with the bond issue. The issue is scheduled to close on October 21. Barclays is the lead arranger to the transaction. Deutsche Bank, JPMorgan and Standard Chartered are the other arrangers.

“The indicative yield range for the pricing for the July 2011 bonds is 8.50 to 9.50 per cent, and 8.75 to 9.75 per cent for the December 2011 bonds,” said sources. Fitch assigned AAA rating for the bond issues.

Earlier, Essar had raised $3.6 billion (over Rs 17,000 crore based on current exchange rate) through the same route. It had exercised the put option available with other holding companies of Vodafone Essar. Altogether, the group holds a 33 per cent stake in the telecom major. The bonds are backed by receivables under a put option agreement for Essar’s equity stake in Vodafone Essar.

The put option is between ETHL, Essar Global, Vodafone Group Plc and Vodafone International Holdings BV.

Vodafone and Essar have an agreement, which allows the UK telecom operator to acquire the Indian company’s stake in Vodafone Essar. The transaction structure also allowed Vodafone to pay $1.2 billion or around Rs 5,700 crore (put option price) either as payment for shares or a debt due, Fitch had said in a statement last week.