Cairn-Vedanta: Scramble to find sol; Oil Sec cancels visit
With time running out, a scramble has began to find a solution on how London-listed mining group Vedanta Resources can get government approval for its USD 9.6 billion deal to acquire majority stake in Cairn India.
February 08, 2011 / 08:49 IST
With time running out, a scramble has began to find a solution on how London-listed mining group Vedanta Resources can get government approval for its USD 9.6 billion deal to acquire majority stake in Cairn India.
The deal, involving Vedanta acquiring 40% to 51% stake from UK's Cairn Energy Plc and thereafter making an open offer to buy for an additional 20% from minority shareholders of Cairn India, is to be completed by April 15For Vedanta to complete the open offer well within the deadline approved by its and Cairn Energy shareholders, the government must this week give its approval to the transaction. The deal is facing a challenge from ONGC over royalty payments on Cairn India''s mainstay Rajasthan oilfields.Sources in know said Oil Secretary S Sundareshan cancelled his February 9-11 trip to Calgary (Canada) for promoting oil blocks offered for bidding in the IXth round of NELP in order to meet chief executive of Vedanta Resources and Cairn Energy again.D N Narasimha Raju, Joint Secretary (Exploration), who was to accompany Sundareshan for the roadshow in Calgary and then proceed to Houston for another promotional show, too will stay back to discuss the finer points of the deal.Market regulator SEBI has not permitted Vedanta to make the open offer to Cairn India shareholders in absence of government approval to its deal with Cairn Energy.As per SEBI regulation, an open offer requires 55-60 days to complete and Vedanta was expecting the nod by today so as to have a small buffer for any contingency.But the approval is stuck as ONGC by virtue of its stake in 8 out of the 10 oil and gas properties held by Cairn India, claims pre-emption rights .It wants the issue of excess royalty it has to pay on Cairn India''s mainstay Rajasthan block to be addressed before giving its no-objection.
Sources said oil ministry has made resolution of the royalty issue one of the 11 pre-conditions for giving its nod.Sundareshan had yesterday met chief executives of Vedanta and Cairn, who opposed three of the 11 conditions, they said.Cairn/Vedanta are opposed to ONGC''s demand for recovering the royalty before profits from sale of Rajasthan oil as it will lower Cairn India''s profitability and valuation.Sundareshan was to meet the Cairn Energy head Bill Gammell, Cairn India CEO Rahul Dhir and Vedanta officials M S Mehta (Group CEO) and Tarun Jain (CFO) again today but the meeting could not take place, sources said.The Rajasthan block, which gives Cairn India 90% of its valuation, is a losing proposition for ONGC, as it has to pay 20% royalty to the state government on the entire output from the field, even though its share from production is only 30%.Cairn India does not pay any royalty on the crude and has even contested the payment of Rs 2,500 per ton cess on its 70% share. . 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!
