Essar Steel will raise $500 million through the issue of compulsory convertible preference shares (CCPS). The company has fixed the conversion price of the shares at Rs 35 per share.

After the conversion of the CCPS, the promoter’s holding in Essar Steel will increase to 70.75 per cent from 56.61 per cent. The company will also seek the shareholders’ approval to enhance the authorised capital from Rs 5,000 crore to Rs 7,275 crore.

The company is raising the money to fund its acquisition programme. Essar Steel has proposed to acquire a 51 per cent stake held by the UK-based steel trading house, Stemcor, in Hy-Grade Pellets Ltd (HGPL) and the 100 per cent stake of Stemcor in Steel Corporation of Gujarat Ltd (SCGL) through a special purpose vehicle.

The company has called an extraordinary general meeting on January 15 to seek the shareholders’ approval for the issue.

The CCPS can be converted into equity shares after six months but before 18 months from the date of allotment. The Essar Steel scrip on Monday closed at Rs 38.85 on the Bombay Stock Exchange, up 0.26 per cent from the previous day’s close.

The coupon rate of the CCPS is fixed at eight per cent cumulative.

Around 75 per cent of the preference shares will be issued to Prime Holdings, while the balance will be issued to Asia Steel Holding. Prime Holdings is part of Essar Steel’s promoter group, while Asia Steel Holding is a non-promoter.

The increase in the promoters’ holding is subject to the reduction of capital, conversion of loans of financial institutions, the convertible instruments already issued pursuant to the corporate debt restructuring scheme stipulations and the resolutions of shareholders at the January 15 meeting.

Essar Steel currently holds a 49 per cent stake in HGPL, which was set up by the company to meet its requirements of pellets.

However, the parent company sold off its 51 per cent majority stake to Stemcor as per a financial restructuring package. HGPL has a three million tonne per annum pelletisation plant in Visakhapatnam, which is likely to be expanded to eight million tonne.