How experts view Vedanta-Cairn deal?

49195 Investors following Sterlite Ind. Share this News with them.

0

Like this story, share it with millions of investors on M3

How experts view Vedanta-Cairn deal?

Vedanta Resources is likely to pick up 51% in Cairn India. According to sources, the deal is seen between USD 8-8.5 billion. Cairn's current market capitalization is at USD 14.3 billion. The formal announcement to the said deal my come in as early as August 16.

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Closing Bell on CNBC-TV18 Watch the full show » RELATED NEWS Vedanta may pick 51% in Cairn for USD 8-8.5 bn Cairn India says parent co to sell stake, not exit ALSO READ See latest News about Sterlite Ind See previous management interviews See what other Experts & Brokerages are saying about Sterlite Ind

Vedanta Resources is likely to pick up 51% in Cairn India . According to sources, the deal is seen between USD 8-8.5 billion. Cairn's current market capitalization is at USD 14.3 billion. The formal announcement to the said deal my come in as early as August 16.

If Cairn India is being acquired at USD 8-8.5 billion, then the open offer works out to Rs 388 - Rs 412 per share. However the buzz in the market is that the open offer in Cairn India is seen at upwards of Rs 400 per share.

According to Niraj Mansingka of Edelweiss Capital fair value for the stock is Rs 323. After the change of controlling hand he is expecting around 10-20% range of premium over the fair value.

Even Prayesh Jain of IIFL finds the deal to be on expensive side. "When a strategic investor invests in, it looks from a different perspective as compared to what we analysts do," Jain adds.

Here is the verbatim transcript of their comments on CNBC-TV18. Also watch the accompanying video.

Q: Your preliminary thoughts on what is been reported at this point in terms of the stake size being bought and the price that's been put forth?

Mansingka: I think the numbers that are floating look slightly ahead of the fair value. Our fair value for the stock is Rs 323. If you look at the change of hand of controlling premium. We generally were expecting around 10-20% range of premium over the fair value. If you add that it comes to very close to a range of Rs 355 to Rs 388 per share but if anything of such kind happens it will take some time and the stock obviously needs to be trading at a lower price compared to that particular range. To me the numbers that which are flashing on the screen looks to be slightly ahead of our estimate.

Q: At the other end it's little difficult to fathom Vedanta's oil interest. How much of a struggle will it be to finance this purchase. Do you have any kind of numbers that you have been working with?

Mansingka: I don't have under coverage but on a generic understanding it's difficult to get so much of equity infusion. They get 1:1 debt equity they will still require 50% of the buyout as equity which will be difficult considering the size of the company. Cairn is a large company in Indian standard so it's difficult to fathom on the size as well as the 51% stake being take off immediately. I have to guess something it will be very close to some staggered payments or produce something like that.

Q: What are you preliminary thoughts on this deal and the deal size as well?

Jain: As Niraj said we find the deal to be on expensive side but when a strategic investor invests in, it looks from a different perspective as compared to what we analysts do. They have more exact information with respect to other fields as well. Currently no analyst is factoring in an upside from the Rajasthan field, the Barmer Hills.

If an analyst would do that so - when a strategic investor does and makes an investment it looks at much broader perspective and much longer-term picture and in that terms they are factoring in Barmer Hill upside possibly more upside from Sri Lankan fields, all those things and possibly they are looking at higher valuation from the current levels and that's what the price they are paying for.