New Delhi: Vedanta Resources Plc has completed the acquisition of a majority stake in Cairn India Ltd, Edinburgh-based Cairn Energy Plc said on Thursday, in what will rank among the largest transactions involving an Indian company.
Anil Agarwal-promoted Vedanta acquired a 58.5% stake in Cairn India for $8.67 billion (around Rs 44,910 crore today), marking its entry in the hydrocarbon business.
Vedanta’s unit Sesa Goa Ltd had bought a 10.4% stake in Cairn India from Malaysia’s Petronas International Corp. Ltd on 19 April and a further 8.1% through an open offer from other shareholders that closed on 30 April. Another 10% was acquired from Cairn Energy on 12 July with the payment for the last tranche of 30% made on Wednesday. While Vedanta Resources holds a 38.5% stake in Cairn India. Sesa Goa holds the balance 20%.
“Net proceeds to Cairn from the sale of a 30% shareholding in Cairn India were $4.1 billion in cash. In July 2011, Cairn completed the sale of a 10% shareholding in Cairn India to Vedanta for net proceeds of approximately $1.4 billion in cash,” Cairn Energy said in an emailed statement. Following the transaction, Cairn Energy retains an around 22% stake in Cairn India.
Firstword: Vedanta Resources promoter Anil Agarwal
“Cairn now proposes to return approximately $3.5 billion of the sale proceeds to shareholders. The return of cash is expected to be made in a manner that will provide shareholders with an element of choice as to when and in what form they receive the cash. A further announcement will be made in due course,” the statement said.
The closure of one of the largest domestic acquisitions in India announced in August last year had been hanging fire with state-owned Oil and Natural Gas Corp. Ltd (ONGC) making the resolution of the royalty dispute a precondition for approval.
ONGC is Cairn India’s partner in a joint venture that runs the latter’s main oil asset, block RJ-ON-90/1, in Barmer in Rajasthan. While Cairn is the operator, ONGC is the licensee and a partner in the field with a 30% stake. ONGC wanted to be compensated for royalty payments it has been making on the oil produced at this field.
Mint had reported on 17 August 2010 that the acquisition would have to overcome significant regulatory hurdles and a possible challenge by ONGC.
In June, the two companies tweaked the structure of the proposed deal by scrapping a proposal to pay an additional Rs 50 per share to promoters as a non-compete fee. As a result, the acquisition price stands lowered by around $800 million, which could at least partially offset any impact of the royalty burden falling on Vedanta after acquiring Cairn India.
The cabinet committee on economic affairs (CCEA) in July approved the acquisition with riders to protect ONGC’s interest. CCEA endorsed the view of a group of ministers headed by finance minister Pranab Mukherjee that vetted the deal. The committee suggested that royalty on the Cairn-ONGC oil fields in Rajasthan be treated as cost-recoverable and the ongoing arbitration case on cess be withdrawn. Cairn had earlier declined to make these payments. It had also challenged the cess dues, but is now paying these under protest.
The deal’s progress was keenly watched by overseas investors looking to enter India. It also saw Cairn Energy’s chief executive Bill Gammell making numerous trips to New Delhi to explain the transaction to the government.
Mint had reported on 21 July about Cairn India indicating its displeasure at the long wait to get government approval for the deal and had also said the inaction has caused the company delays and uncertainties in managing its business.
In a letter dated 25 June, Cairn India managing director and chief executive officer Rahul Dhir had said that what should have been a straightforward transaction subject to shareholder approval has been drawn into the ambit of government decision-making.