Vedanta Resources Plc’s proposed acquisition of a majority stake in Cairn India Ltd for as much as $9.6 billion (Rs44,736 crore) may be scuppered by the ministry of petroleum and natural gas, which wants the oil explorer to offer state-owned Oil and Natural Gas Corp. Ltd (ONGC) a chance to buy the stake.
ONGC is a partner with Cairn India in the joint venture that runs the latter’s main oil asset in the country. Cairn is the operator of block RJ-ON-90/1 in Rajasthan while ONGC is the licensee and a partner in the field with a 30% stake.
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“The deal may not go through. They will have to give a choice to ONGC,” said a top official of the petroleum ministry, who did not want to be identified. “We are trying to find out the real worth of the assets. It will take some time. Cairn is applying to us for approval.”
Vedanta, the London-listed miner controlled by billionaire Anil Agarwal, has proposed to acquire 60% stake in Cairn India, paying Rs.405 per share to the explorer’s UK-based parent Cairn Energy Plc, including a non-compete fee, and 20% in an open offer to shareholders at Rs.355 apiece.
The deal has already been clouded by regulatory concerns raised by the petroleum ministry, tax implications and reservations expressed by Life Insurance Corp. of India (LIC), which owns a 2.57% stake in Cairn India, and analysts that the offer was unfair to shareholders.
An LIC official, who spoke on condition of anonymity, said the state-owned insurer may not tender its shares in the open offer, Mint reported on 19 August.
Under existing guidelines, non-compete fees do not get added to the open offer price that Vedanta will have to pay.
Vedanta has already published an advertisement making an open offer to the minority shareholders of Cairn India as part of the takeover exercise.
The government has indicated that the deal will require its go-ahead, and ONGC said it would have to study the so-called right of refusal it has to Cairn India’s stake in the joint venture to understand the implications for it of the Vedanta-Cairn transaction.
Vedanta has expressed confidence that it would close out the deal by the end of the current fiscal. Cairn Energy’s chief executive Bill Gammell last week met petroleum minister Murli Deora to explain the transaction.
Cairn also has a pending dispute with ONGC on the payment of royalty. Cairn has declined to share the royalty payments to the government, which at present are being entirely absorbed by the state-owned oil explorer. Similarly, Cairn has challenged its cess dues and is paying these under protest.
The same petroleum ministry official quoted above had earlier signalled that the government wanted ONGC to make a counter offer for Cairn India, saying: “The question is how to get it to ONGC. Somebody has to give a better offer.”
Spokespersons for Cairn India and Vedanta declined to comment for this story.
ONGC chairman and managing director R.S. Sharma maintained that he did not rule out a counter offer, saying: “We are not negating anything.”
“We have already identified multiple options,” Sharma said, adding that ONGC would act in its “right interests”.
“Let us see. Let us wait and watch,” Sharma said, declining to elaborate.
Further clarity is expected to emerge about the deal only when Cairn India submits the proposed transaction for the government’s approval.
“The question is on what grounds can ONGC stake its claim,” said another senior petroleum ministry official, who also did not want to be identified because of the sensitive nature of the deal. “All these issues will be addressed when Cairn submits its proposal.”