The Essar Group's foreign holding in Hutchison Essar (HEL) is about to go up significantly. The Ruias have applied to the Foreign Investment Promotion Board (FIPB) on Thursday to increase Essar's foreign holding in HEL by 6.26% to 22.02% from the present 15.76%.

Essar proposes to invest up to $500m (about Rs 2,330 crore) in HEL to be able to do this. This would peg HEL's equity valuation at roughly $8bn.

The application to the FIPB also proposes to restructure the foreign holdings in HEL. Its additional foreign equity in HEL will be routed through Essar Communications, a Mauritius-based offshore holding company of the Essar group. Essar Communications is part of Essar Global, the international arm of the Essar Group.

When contacted, Essar Tele-Holdings CEO Vikas Saraf confirmed the developments. "The Essar group has sought FIPB approval to increase Essar's total foreign holding in HEL to 22.02%, Mr Saraf told ET. Essar TeleHoldings is the telecom arm of the Essar group.

Currently, the total foreign holding (direct and indirect) in HEL is around 68%. If Essar's application is cleared by the FIPB, total foreign holding in HEL will climb to the maximum permissible limit of 74% under the new foreign direct investment (FDI) norms for telecom services. In such a scenario, HEL's principal foreign shareholder, Hutchison Telecoms International (HTIL) of Hong Kong, will hold 51.98%, while Essar group's foreign holding will be 22.02%.

Currently, Essar officially holds a 33.01% stake in Hutch-Essar. Out of this, 27.21% is held through Essar TeleHoldings-Vilsat Investments (21.02%) and Essar-Mauritius Investors (6.19%).

Company circles confirmed the "balance 5.8% bloc comprises pledged Essar shares held by UTI Advisory Services (3.85%) and IDFC (1.95%), with the right to buy-back being with Essar. Essar's pledged shares are linked to an earlier financing deal with financial institutions.

At this stage, details of Essar's proposed rejig of its foreign holdings in HEL are not known. But company circles indicated the entire 22.02% foreign equity component within Essar's 33.01% bloc will be routed through Essar Communications and its offshore subsidiaries.

Under the agreement between HEL's existing shareholders, Essar claims it can own up to 22.02% of its 33.01% stake through foreign investment companies. Under the 74% telecom FDI guidelines, foreign ownership up to 49% comes under the automatic approval route, but applications for FDI in excess of 49% require FIPB approval.