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ONGC claims pre-emptive rights to Cairn’s assets

ONGC claims pre-emptive rights to Cairn’s assets
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First Published: Thu, Sep 16 2010. 11 55 AM IST
Updated: Thu, Sep 16 2010. 11 55 AM IST
New Delhi: State-run Oil and Natural Gas Corp. Ltd(ONGC) seems to have finally decided to exercise its “pre-emptive right” in the deal between Vedanta Resources Plcand Cairn India Ltd, and has written to the stock exchanges to this effect.
Also See | ONGC statement (pdf)
In a letter to the Bombay Stock Exchange and National Stock Exchange on Monday, N.K. Sinha, ONGC’s company secretary, wrote: “ONGC has, inter-alia, pre-emptive rights in relation to Cairn’s participatory interest under the various agreements with the government of India and ONGC, and Cairn Energy Plc and/or its affiliates require consent of ONGC besides other governmental approvals to consummate the proposed transaction.”
Earlier this month, Vedanta had announced its decision to enter the oil business by paying up to $9.6 billion (around Rs44,930 crore today) for a majority stake in Cairn India, a subsidiary of Cairn Energy Plc.
Mint had reported on 17 August that the acquisition will have to overcome significant regulatory hurdles and a possible challenge from ONGC, Cairn India’s partner 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.
While spokespersons for Cairn India and Vedanta declined to comment, a top ONGC executive, who did not want to be identified, said: “We have always taken our partners and the government into confidence whenever we go for anything like this. There has been a lack of transparency and clarity on the part of Cairn. They have taken these things for granted.” The executive declined to comment on any counter-offer by Cairn.
ONGC’s so-called right of first refusal on the sale of the Rajasthan block by Cairn India has been the subject of much speculation—especially because, in this case, Vedanta would appear to be buying a majority stake in Cairn India itself from the latter’s parent, and not just the oil block from Cairn India.
London-listed Vedanta has proposed to acquire a 60% stake in Cairn India, paying Rs405 per share to Cairn Energy, including a non-compete fee, and 20% in an open offer to shareholders at Rs355 apiece. Vedanta, on behalf of Sesa Goa Ltd, its subsidiary that will make the offer, has published an advertisement explaining the offer to minority shareholders of Cairn India.
Public shareholding in Cairn India totals 37.64%, and analysts have calculated that public shareholders could have got around Rs3,570 crore more had the non-compete premium been extended to them as well.
Under India’s proposed takeover norms, non-compete fees will not be permitted. Therefore, everyone gets to sell their shares at the same price. The proposed norms would have also required Vedanta to make a larger open offer. The timing of the offer could save Vedanta as much as $9 billion, according to an estimate by SMC Capitals Ltd.
ONGC has formed a group comprising chairman and managing director R.S. Sharma, director of finance D.K. Sarraf and ONGC Videsh Ltd managing director R.S. Butola to evaluate the deal and has asked Cairn Energy for “full details along with the copies of the agreements and other arrangements entered into between Cairn Energy Plc and/or its affiliates and the proposed buyer (and/or its affiliates)”.
utpal.b@livemint.com
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First Published: Thu, Sep 16 2010. 11 55 AM IST