The loan, which will be the largest fund-raising through the share monetisation route by an Indian company, will be used to lower borrowing costs and to fund investment for companies that are part of the Essar Group, according to a statement from BNP Paribas, which is part of the loan arrangement team.

The group recently bought two steel plants in Canada and the US for $3.2 billion and committed $4 billion in Egypt to set up a refinery and steel plants. It is hunting for more global assets.

Essar Communications India Ltd (ECIL) hired Standard Chartered Plc, Commerzbank AG, BNP Paribas SA and Citigroup Inc. to arrange the loan. The fully-underwritten deal will mature in December 2011 and pays a margin of 90 basis points over Libor.

Government approval for the deal comes after some differences between the finance ministry and the Reserve Bank of India [Get Quote] (RBI) earlier this year over whether it violated foreign direct investment norms.

In June, the finance ministry turned down the RBI's May 21 recommendation to reject Essar's application to pledge shares in ECIL, a non-resident company that indirectly holds nearly 16 per cent in Vodafone-Essar, for an overseas loan.

RBI's view was that the proposal would result in the transfer of equity holding from a resident entity to a non-resident entity and could violate the 74 per cent foreign direct investment (FDI) limit on telecom service providers.

The ministry had said there was no specific provision of law that prohibits such a transaction.

On the basis of Vodafone's acquisition cost, Essar's holding in Hutchison-Essar is valued at $ 5.46 billion. An agreement between Vodafone and Essar gives the latter an option to sell its one-third stake in Hutchison Essar to Vodafone after three years.

Essar also has the option to sell between $1 billion and $5 billion worth of Hutchison Essar shares to Vodafone at an independently appraised value.