Essar may buy IDFC, UTI stake

Company plans SPV to buy IDFC, UTI's 5.83% equity in Hutchison Essar.

The Essar Group plans to acquire the 5.83 per cent equity held by the Infrastructure Development Finance Company and the UTI Investment Advisory Services in its telecom joint venture, Hutchison Essar, through a special purpose vehicle.

This will take the Essar Group's total holding in Hutchison Essar to 33.01 per cent. The largest shareholder in the company is Hong Kong-based Hutchison with 42.35 per cent stake. This would be second equity restructuring taking place in Hutchison Essar in less than a week.

Kotak Mahindra Bank's subsidiaries, associates and promoter group companies on Wednesday sold 8.3 per cent stake in Hutchison Essar for Rs 1,019 crore to Analjit Singh, Hutchison's original joint venture partner for telecom business in the country.

According to an application filed with the Foreign Investment Promotion Board, the Essar Group proposes to set up a $400 million special purpose vehicle called Essar Comvestment Ltd (ECVL), which will buy the equity held by the two Indian financial institutions.

An Essar spokesperson refused to comment on the application. "UTI Advisory Services and IDFC together hold approximately 6 per cent of Hutchison Essar as part of financing transactions. And Essar Teleholding has the right to re-purchase this at any time," he said.

The ECVL will also acquire a 10.05 per cent stake in the Hutchison Essar from the Essar Teleholdings and the Vilsat Investment.

In a parallel deal, the Essar Telecom Investments, which is a 100 per cent Indian owned company, will buy 10.97 per cent stake in the Hutchison Essar from the Essar Teleholdings and the Vilsat Investments. After these share-transfers, the foreign equity in Hutchison Essar will go up to 64.38 per cent from 48.53 per cent.

According to the application filed with the FIPB, the purchase of Hutchison Essar's equity shares is in keeping with the agreement with the shareholders of the company and will be taken up for approval by the board.

The company has said in its application that, while the existing shareholding in the Hutchison Essar was 48.53 per cent, many of the Indian shareholders had further foreign investors, which would qualify as indirect foreign investment under the FDI policy.

As a result, the shareholders agreed to restrict the foreign holding in the company at 74 per cent. It was also agreed that a minimum Indian equity requirement would be maintained. The company's articles of association would be amended for this purpose.

In order to comply with the Press Note 9, the ECVL has also given an undertaking to the government that it would not borrow domestically to fund the acquisition of the shares.