Vedanta Snaps Up 11% Of Cairn India From Petronas

20 April, 2011

India-focused miner Vedanta Plc bought an 11 percent stake worth about $1.5 billion in Cairn India, a source said, easing the pressure on its open offer for the energy firm and bringing it closer to a majority stake in the unit.

Vedanta’s $9.6 billion deal to buy a majority stake from Cairn Energy in India’s No. 4 oil and gas firm is yet to receive the Indian government’s approval, eight months after its announcement, due to a dispute in royalty payments.

The acquisition was part of London-based mining magnate Anil Agarwal’s plans to grab a slice of India’s oil reserves and get exposure to surging demand. Vedanta will join BHP Billiton as the only miner with large oil interests.

Vedanta bought the 11 percent stake in Cairn India from Malaysia’s national oil corporation Petronas, which also sold its remaining nearly 4 percent stake to some foreign portfolio investors, the source familiar with the matter said on Tuesday.

Analysts said Vedanta’s share purchase in Cairn India, done through block deals, will help it gain a majority stake in the company even if an open offer to buy additional shares in Cairn India from minority shareholders does not see a big response.

“This is a strategic move by Vedanta and it makes the open offer inconsequential,” said Jagannadham Thunuguntla, head of research at brokerage SMC Global Securities.

“Vedanta will now be able to get a comfortable controlling stake in Cairn India even if the open offer response is very poor,” he said. “But all this is subjective to the government clearing the deal and that is an unknown factor.”

Cairn India shares rose as much as 3 percent after the block deal on Tuesday to touch 346.15 rupees, slightly below the 355 rupees that Vedanta’s India unit Sesa Goa is offering to Cairn India minority shareholders.

Cairn Energy shares gained 1.4 percent in early trade, while the FTSE index goes up 0.6 percent.

Spokesmen for Cairn India and Vedanta in India did not respond to calls by Reuters seeking comment on the block deal.

Vedanta had said Cairn India had the potential to almost double current production to about 240,000 barrels of oil per day — around a quarter of India’s output — allowing it to benefit from rising demand amid industrialization, economic growth, and an expanding population.

The offer by Sesa Goa to buy up to a 20 percent stake in Cairn India was launched on April 11 and closes on April 30.

Thunuguntla said many investors would not tender their shares because the gap between the open offer price and the market price had narrowed significantly.

Vedanta bought the 11 percent stake at 331 rupees ($7.40) a share, the source said, reflecting a discount of 1.6 percent to Cairn India’s closing price on Monday.

Cairn India saw 283 million shares, or 14.9 percent of the share capital, changing hands in block share market deals on the Bombay Stock Exchange on Tuesday. Bank of America Merrill Lynch represented Petronas in the deal.

BIG DEAL

Vedanta’s deal to buy Cairn’s India assets, which would be the biggest acquisition in the Indian oil sector, is widely seen as a litmus test for foreign investment into India.

Vedanta and Cairn Energy have extended the deadline to seal the deal to May 20, after they failed to get the approval from the Indian government within the previous deadline of April 15.

This month, the Indian government referred the matter to a panel for further review, after discussing it in a meeting in which it was expected to make a final decision.

The deal has been delayed by a dispute over royalty payments by Cairn India’s partner, state-run Oil and Natural Gas Corp.

ONGC, which has a 30-percent holding in the Cairn-operated Rajasthan fields in western India, pays 100 percent of the royalties. India’s oil ministry has been pushing to share the royalty burden between ONGC and Cairn India.

Both Cairn and Vedanta have opposed that move. Any changes in the royalty structure will impact valuations and may jeopardize the deal, analysts have said.

 


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Vedanta Snaps Up 11% Of Cairn India From Petronas

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