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Vedanta picks up 10.4% stake in Cairn India as Petronas exits

Vedanta picks up 10.4% stake in Cairn India as Petronas exits
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First Published: Wed, Apr 20 2011. 01 22 AM IST

Updated: Wed, Apr 20 2011. 01 22 AM IST
Mumbai: Even as it waits for government approvals to complete its proposed acquisition of the Indian arm of Cairn Energy Plc, Vedanta Resources Plc has strengthened its position in Cairn India Ltd by buying a 10.4% stake for Rs6,620 crore from Petroliam Nasional Bhd, or Petronas, the Malaysian state-owned oil and gas company.
The shares were acquired through Sesa Goa Ltd, a locally listed subsidiary of Vedanta, which is listed in London.
Petronas said in a release on Tuesday that it had offloaded its entire 14.94% holding in Cairn India for $2.1 billion (Rs9,387 crore).
“The transaction brings to a close a successful association as a shareholder with Cairn India since 2006,” Petronas said.
At Rs331 a share, the transaction was at a discount to the open offer by Vedanta for 20% of Cairn India’s share capital from minority shareholders at Rs355 a share. The open offer began on 11 April and ends on 30 April.
Vedanta, which wants to acquire a 51-60% stake in Cairn India for up to $9.6 billion, will be paying an additional Rs50 per share to the existing promoters of Cairn India as non-compete fee.
Sesa Goa stated in a filing to the bourses that the transaction with Petronas was in addition to the open offer.
Cairn India rose 2.29% to end at Rs344.25 on the Bombay Stock Exchange (BSE) on Tuesday. The bourse’s benchmark equity index, the Sensex, gained 0.16% to close at 19,121.83 points. Sesa Goa rose 0.69% to Rs307.40. Cairn Energy gained 1.34% to 438.40 pence (Rs318) on the London Stock Exchange at 10pm India time, while Vedanta rose 1.48% to 2,267 pence.
An email sent to Vedanta and calls made to its spokesperson did not elicit a response.
Getting a 10.4% stake in Cairn India at a 6.7% discount to the open offer price could help bring down the overall cost of acquisition for Vedanta, analysts said. It would also make the open offer more attractive to other shareholders, they said.
“Presuming all shareholders tendered their shares, the acceptance ratio for Cairn India’s shares in the open offer might have been only 38-40%,” said Arun Kejriwal, director of Kejriwal Research Investment Services. “With Petronas’ stake not being a part of the open offer any more, the acceptance ratio vis-à-vis other shareholders would now increase.”
Petronas may have chosen to sell its stake outside the open offer, even if at a discount, to ensure that it could completely exit the company.
“The acceptance ratio for Petronas’ shares may have been only 50-55% if it participated in the open offer,” said a person close to the development. He did not want to be identified as the deal is not yet closed. Calls made to a Petronas spokesperson in Malaysia were not answered.
The remaining 4.5% stake has been bought at around the same price by some financial investors such as mutual funds and foreign institutional investors (FIIs), said a person with direct knowledge of the deal. He did not want to be identified. These new shareholders were eligible to tender their shares in the open offer, according to the person.
According to BSE data, the shares are held through Merrill Lynch Capital Markets Espana SA SV, a depository that buys shares on behalf of investors, and Broad Peak Mauritius Pvt. Ltd, an FII registered with India’s capital markets regulator, Securities and Exchange Board of India.
The Cairn-Vedanta deal has faced regulatory hurdles ever since it was announced on 16 August. Cairn Energy stated on 7 April that it had decided to extend the deadline for the completion of the deal to 20 May from 15 April.
The primary reason for the delay in the deal being approved by the government lies in a dispute between Cairn India and its partner at its oilfield in Rajasthan over the payment of royalty to the government. State-run Oil and Natural Gas Corp. Ltd (ONGC) holds a 30% stake in the same block, but pays royalty on the entire production. ONGC demanded that the issue of royalty payment be settled before the government gives its nod to the Cairn-Vedanta deal.
The cabinet committee on economic affairs under the Union government had decided on 6 April to refer the dispute to a group of ministers headed by finance minister Pranab Mukherjee.
Sesa Goa also clarified in a statement to the bourses on Tuesday that its open offer for Cairn India’s shares was not subject to the government’s consent to the deal.
Deal pushes BSE past NSE on daily turnover
The turnover on the Bombay Stock Exchange (BSE) on Tuesday surpassed that of the National Stock Exchange (NSE) because of the bulk deal worth Rs9,381 crore involving the sale of Petronas’ stake in Cairn India Ltd. BSE’s market share in the cash segment, which is typically around 20%, rose to 54% and stood at Rs12,832 crore for the day
aveek.d@livemint.com
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First Published: Wed, Apr 20 2011. 01 22 AM IST