With Cairn India and Vedanta boards waving the green flag for their merger — in a ratio of 1:1 — share base of Vedanta promoter will get diluted by 20 percent. Vedanta PLC ownership in the company will fall to 50.1 percent versus 62.9 percent.
Tom Albanese, CEO, Vedanta Resources, says he is encouraged by the positive response from analysts and shareholders. He says the ultimate aim is to create a large diversified low-cost business with a simple structure. The focus over next few quarters will be to reduce Vedanta's debt. he adds.
According to Albanese, regulators and shareholders may approve merger by December-end. He further adds that the cash will be fairly assessed in valuation multiple and will be used effectively. It will be invested for growth purposes, he adds.
Mayank Ashar, MD and CEO, Cairn India says the company is focussed on growing as fast as it can, with oil prices where they are. 70% of capital is spent on growth, he adds.
Below is the verbatim transcript of Tom Albanese and Mayank Ashar's interview with Nayantara Rai on CNBC-TV18.
Q: What is response that you are getting from analysts on the merger?
Albanese: We have a lot of coverage, we have been met with many people and we have met with the analysts over the course of the day yesterday. I think we are encouraged by the positives response.
Ashar: Good response and what people were most concerned about is Cairn's growth story in terms of focus on oil and gas. Does it remain unchanged and the brief answer is yes so affirmation of expectations in that so we are pleased with that.
Albanese: From our perspective, we are focussing on the big picture. The big picture is the future in India for mineral and oil and gas resources. The benefits of creating a large diversified low-cost business that has a simple structure of oil and gas, headed by oil and gas CEO, iron ore etc and that is the business most efficient and allocating capital of future and again those businesses we continue to progress and they have their own brands, so Cairn will continue to have its brand and as you look at opportunities and based upon the capabilities of your team to bring opportunities there.
Q: Yesterday you kept saying that this merger is because you want simplification, diversification, hedge commodity risks etc, what about Cairn India's cash, it has also about more than Rs 17,000 crore in cash, you get undebted access to that cash now?
Albanese: Again the valuations have been done on the basis of best practice global governance. We would have set the valuation of cash, we would have set the valuation of respective balance sheet so again it would have been fairly set in the valuation multiple that was what the board approved and represented that.
Q: What is the game plan as far as the cash and the cash reserves go?
Albanese: It is very important to recognize that Mayank Ashar will be spending capital issue and he would also be generating cash from this operation.
So if you look at what we are going to do across the board, we will be looking at the best opportunities about nine months from now, which is around the time that we have been completion of this. So I don't want to predict the future but the intention is to invest in growth, to continue to increase the dividend of the shareholders and again we have said time and time again before this transaction was approved that the intention of Vedanta Ltd is to deliver that is what we did exactly last year.
Q: So you do confirm that some of the cash will be used for deleveraging the Vedanta balance sheet?
Albanese: We will look at the best opportunities and as we said yesterday that we already have plans well advanced, our CFO said yesterday we will be extended terms of our debt over the course of the year independ-ent of this transaction.
Q: How much debt would you want to extend?
Albanese: We look at what the maturities are and we will present them accordingly.
Ashar: As far as Cairn India is concerned, we are very focused on growing as fast as we can but recognising and that we live in the world of the oil prices today so 500 million, I would say it is not an insignificant amount of money to spend for an energy company in India or anywhere else in the world.
Compared to our competitors, we are spending more, 70 percent of our capital is spent on growth and what we are working on is to make sure that the growth pipeline is filled well and I will share with you how we are filling that. It is not as simple as simply investing money and producing oil and earnings returns, it is more complex than that because the oil in Rajasthan it tight oil, it requires very sophisticated technology, horizontal drillings and we are doing some of the most advanced technology applications in Asia when it comes to drilling and when it comes to enhance oil recovery project, we are doing the largest project in the world.
So I will share with you at this broad oil price en-vironment I am running as hard as I can with the employees so that we can invest and get return but the advantage I see of this deal is it derisks Cairn from a single commodity exposure to be part of a diversified well, low cost non-reserve asset. So in the future when we see a low cycle, today when Cairn looks at a low cycle oil prices, it has to adjust but in the future we will have ability to look at the price over the long cycle and invest in confidence. So brief answer to you is today we are investing as hard as we can and our job is to fill the growth pipeline with more projects and the only way to do that in this oil price environment is to use technology and be smart about that.
Albanese: Mayank has just perfectly articulated the strategy of Vedanta and now we are looking at businesses that are strong and that are run by the CEOs that are not only looking at what to get into the next 60 days but perhaps have longer-term vision. So we can -- our Chief executives of each of our businesses are charting a path, they have a vision, have a strategy for next three-five years and they are taking their teams with them.
Q: You said that because of this independent businesses, you will also have stable cash reserve. I can understand how you are going to have cash reserves but I still don't understand how you are going to have that for example Hindustan Zinc or Balco because you cannot do that be-cause of the government\\'s residual stake?
Albanese: What we are looking at is a simplification that would take place over time and again we are looking at creating those businesses overtime. We have the aluminium business, we have iron ore and we have a very strong zinc business in India and all of this we see overtime evolving into business particles each one by the chief executive, their own respective visions about where they are going to take their sector not just from a perspective of India but also as the leaders in global.
Q: When are you expecting the regulatory approvals?
Albanese: In between now and Q4 there will be a sequence of the approvals that will be acquired over a period of time and we would expect the shareholders to be presented with that towards calendar Q4 of this year.
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