Larsen & Toubro could end up funding the purchase of its own equity. Employees of the company, who will be buying the Birlas' 15.74 per cent stake in the engineering company for Rs 470 crore (Rs 4.7 billion), are planning to part finance the purchase through loans raised from L&T.

The rest of the funds will come in as loans from banks and financial institutions and seed capital from the employees.

Confirming this, a L&T management team member said, "The exact mix of loans from the company, seed capital and borrowings from banks and institutions is still being worked out." He refused to divulge further details.

Usually, companies finance only the purchase of their shares in a buyback, which is done out of their reserves. A company funding the purchase of its equity through loans is virtually unheard of.

A foundation or a trust set up by L&T employees is to buy the Birlas' 15.74 per cent stake in L&T, after its cement business is hived off.

Transfer likely to trigger open offer

The transfer of the 15.74 per cent stake from the Birlas to the L&T foundation or trust, proposed under the tentative scheme or arrangement, is likely to trigger an open offer for an additional 20 per cent stake in the company.

Legal sources said no entity, including a trust, is exempt from the takeover code.

Securities and Exchange Board of India sources said they had not received any proposal so far, but added, "We will take a decision only after seeing the proposal. However, prima facie the takeover code is applicable to all entities."