Sebi clears Cairn-Vedanta deal
One of the conditions for government approval to the deal involve Cairn India being asked to obtain no objection certificate (NOC) from its partner Oil and Natural Gas Corp (ONGC).
March 18, 2011 / 19:52 IST
Market regulator Sebi has cleared the acquisition of Cairn India by NRI billionaire Anil Agarwal-led Vedanta Resources, removing a major hurdle for the USD 9.6 billion dollar deal announced about seven months ago.
The deal was announced in August 2010 and has since then been awaiting approvals from Sebi and the government. The government is yet to approve the deal, wherein British energy giant Cairn Energy agreed to sell its majority stake in Cairn India to Vedanta group. After seeking numerous clarifications on the deal from acquirer over the past seven months, Sebi has issued its final observations on the mandatory open offer to be made to the public shareholders as part of the deal. Any deal involving acquisition of 15% or more stake in a listed company requires the acquirer to make an open offer for 20% stake purchase from public shareholders and this offer needs to be approved by Sebi. Soon after announcing the deal to acquire up to 51% stake in Cairn India, Vedanta group had sought Sebi's approval for the mandatory open offer to be made to the public shareholders of the target company. In the public offer announced on August 17, Vedanta group had offered to acquire up to 20% stake from public shareholders for a price of Rs 355 per share. The Rs 13,631 crore open offer was first scheduled to open on October 11 and close on October 30, but got affected due to delay in Sebi approval for the same. The company will now have to announce a fresh schedule for the open offer, where it may have to incorporate various clarifications sought by Sebi during the course of its due diligence on the proposed transaction. Cairn India shares today closed 1.5% higher at Rs 346.20 at the BSE. The deal is currently awaiting an approval from the Cabinet Committee on Economic Affairs (CCEA). The Oil Ministry last month circulated a draft note for the CCEA approval, but comments on the same have not been received from all the ministries. Oil ministry will move Cabinet Committee on Economic Affairs (CCEA) once comments from ministries of finance, law, home, environment and corporate affairs are received. In all probability, the CCEA is likely to give an in- principal nod to the deal where London-based mining group Vedanta, which has no prior experience in oil sector, is buying up to 51% stake of UK's Cairn Energy Plc. Oil Ministry has watered down its preconditions and has almost withdrawn its condition that Rs 21,802 crore in royalty and cess paid by Oil and Natural Gas Corp (ONGC) on behalf of Cairn India from the Rajasthan oilfields should be equitably shared.One of the conditions for government approval to the deal involve Cairn India being asked to obtain no objection certificate (NOC) from its partner ONGC.ONGC holds a stake in eight out of 10 properties held by Cairn India.The ministry is of the view that the change of control of Cairn India amounts to an indirect assignment or transfer of participating interest in the blocks. Therefore the need for government as well as partner's nod.ONGC owns a 30% stake in the Rajasthan block, but pays royalty on the entire quantum of crude oil produced from the fields.Over the life of the field, the royalty burden works out to Rs 18,000 crore, of which ONGC has to also bear Cairn''s share of about Rs 12,600 crore.Cairn has also disputed any liability of payment of Rs 2,500 per tonne cess on its 70% share of production from the Rajasthan blocks, which totals Rs 9,202 crore for ONGC over the life of the field.Sources said ONGC wants royalty and cess to be cost- recoverable, like capital and operating expenses.Under the Production Sharing Contract (PSC), capital and operating expenses are first deducted from the sale of oil and profits are shared among the stakeholders, including the government, thereafter.Cairn and Vedanta are opposed to the move as it would lower Cairn India''s profitability.Sources said all the Oil Ministry now wants is for Vedanta to make appropriate disclosures to market regulator SEBI when it makes an open offer for acquiring an additional 20% stake in Cairn India, as per takeover rules.Comments on the note are likely to be received by next week and the matter may go to the Cabinet in the following week for consideration.Though Cairn Energy and Vedanta have a timeline of April 15 to close the transaction, the deal will go through even if Cabinet was to give its nod by the month-end.Once the government''s nod is obtained, the two firms can approach their shareholders seeking an extension of the April 15 deadline, saying the conclusion now remains a mere formality.Sources said that in all likelihood, the deal can be closed by May-end.
The note states that Vedanta Resources had only "very recently" informed the ministry through a letter dated January 28 that the transaction needs to be closed by April 15. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
