Home >Companies >No restructuring at Cairn post merger: Vedanta

Mumbai: The Cairn India brand will remain intact and no restructuring will take place at the company after its merger with parent Vedanta Ltd, Tom Albanese, chief executive officer (CEO), Vedanta, said in a conference call on Friday.

He also said the company had received a good response from some shareholders and proxy firms on the revised terms of the merger. “Cairn India runs its own operations while Vedanta runs its own. We don’t see a restructuring going forward. It’s a very clear intent to protect the Cairn brand," said Albanese.

Vedanta, a unit of Vedanta Resources Plc, UK, which is listed on the London Stock Exchange and represents the Vedanta group, had mooted the idea of merging subsidiary Cairn India Ltd last June. The merger, however, could not be completed due to opposition from minority investors such as Life Insurance Corp. of India (LIC).

On 22 July, Vedanta sweetened its offer to Cairn India shareholders. Under the new deal, for each share they hold, Cairn India minority shareholders were offered one equity share and four redeemable preference shares in Vedanta, an increase of three redeemable preference shares over the earlier offer.

Both companies see value for shareholders coming from Vedanta’s zinc business till Cairn India ramps up production. The Rajasthan asset of Cairn India contributes over 27% of domestic crude oil production. “We are expecting to ramp up production from Cairn India assets by 2018. Till then, shareholders can reap benefits from the zinc business of Vedanta," Albanese added.

Sudhir Mathur, chief financial officer and acting CEO, Cairn India said, “The zinc business assets of the group may last for another 30 years, while that of Cairn India may for another eight years."

Vedanta said it has received “constructive feedback" from its minority shareholders on the proposed merger. “We have received good response from proxy firms, and big and small shareholders we continue to talk to," said Albanese.

He did not divulge if the firm has spoken to LIC and Cairn Energy Plc which are shareholders in Cairn India. LIC owns 9.06% in Cairn India and 3.9% in Vedanta.

Cairn Energy Plc, former owner of Cairn India, holds about 10% interest in the firm.

The revised and final terms of the merger were at a 20% premium to the share price of the previous 30-day period, Albanese said. Cairn’s minority shareholders can sell their preference shares after 30 days of the merger’s conclusion.

On Friday, Vedanta ended at 179.05 on BSE, up 3.68% from its previous close, while the benchmark Sensex index dropped 1.17% to close at 28,077.34 points.

Cairn India rose 4.28% to close at 210.95.

On Thursday, Mint reported the Securities and Exchange Board of India (Sebi) is investigating an unusual rise in the stocks of Cairn India and Vedanta during the run-up to the announcement of revised terms for their merger on 22 July.

The regulator is checking if any entity made illegitimate gains by trading in these two stocks on the basis of any privileged, unpublished price-sensitive information about the fresh merger terms before they were publicly announced.

Billionaire Anil Agarwal’s Vedanta Resources in 2011 bought a 58.5% stake in Cairn India from Cairn Energy for $8.67 billion. Currently, Vedanta Ltd holds 59.88% in Cairn India.

For the merger to go through, half the minority investors have to give a green light to the deal. Vedanta plans to close the transaction by end of March 2017.

Vedanta has summoned a shareholders’ meeting to consider the new offer on 8 September. Cairn shareholders will convene on 12 September.

Albanese also said Cairn’s capital expenditure for the next fiscal could see an upward revision, although he didn’t say exactly how much this would be. Cairn India is investing $100 million as capital expenditure this fiscal. The company had invested $500 million in exploration and production last fiscal.

“I am very bullish on Cairn India’s prospects both for Rajasthan and other assets. Cairn has to build on that success. We will be looking at new opportunities going forward," said Albanese.

The merger is said to give Vedanta access to cash lying with Cairn to pay off part of its debt, according to analysts.

As of the first quarter of this fiscal, Cairn India held a net cash position of $3.5 billion, while Vedanta and Twin Start Mauritius Holding (a wholly-owned unit of Vedanta Ltd) had a net debt position of $10.5 billion, which also includes the $1.25 billion intercompany loan given by Cairn India to THL Zinc Ltd, a unit of Vedanta in 2014. The loan was to be repaid by July 2016. It, however, got rolled over for another two years this May.

“While the revised terms entail a rise in debt/cash outflow of an estimated $447 million—compared with $120 million under the original terms—they will give Vedanta complete access to Cairn India’s large cash holdings, as well as provide the flexibility to reduce debt, thereby lowering leverage and reducing subordination within the group," said Moody’s Investors Service in a report dated 25 July.

Albanese said that Vedanta had a good cash flow with or without the merger of the two companies. The company saw $1.7 billion of free cash flow last year.

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