Vedanta expects Cairn deal approval in few days

Vedanta expects Cairn deal approval in few days

Mumbai: Vedanta Resources expects the government to approve its long-pending deal to take control of Cairn India in the next few days, its chairman said, adding that the issue of royalty payments should be treated separately.

The market regulator, Securities and Exchange Board of India (Sebi), has approved an open offer to buy shares in Cairn India in an issue to be launched next week, Vedanta chairman Anil Agarwal told reporters on Tuesday.

The market regulator’s approval of the open offer comes seven months after London-listed Cairn Energy agreed to sell up to 51% in its Indian unit to Vedanta in a deal valued at up to $9.6 billion.

The deal has been delayed due to a dispute over royalty payments by state-run Oil and Natural Gas Corp, which has a 30% holding in the Cairn-operated Rajasthan fields in western India but pays 100% of the royalties.

Agarwal said he believed the royalty payments issue should be treated separately.

“The uncertainty about the royalty issue will play on investors’ minds during the open offer if the deal is cleared without settling the royalty part," said Alok Deshpande, an energy sector analyst with Mumbai brokerage Elara Capital.

The deal still needs the government approval, which is crucial for completion of the biggest acquisition in the Indian oil sector and could boost investor sentiment in Asia’s third-largest economy.

“It will come within a few days. We are waiting for that," Agarwal said, when asked about the government approval. “The government has assured us the decision will come very soon."

Oil ministry has maintained it has nothing against the deal but it would strive to protect ONGC’s interests.

Any changes in the royalty structure or cess payments would impact valuations and could jeopardize the deal, analysts have said.

“In terms of corporate structuring of the deal, we think there is nothing wrong in this deal and therefore the open offer approval was expected," Deshpande said.

“The royalty payment has created such a big issue and it remains to be seen the clauses that will be put to resolve this," he said.

Oil secretary on Monday said he hoped the cabinet would soon make a decision on the deal.

Last month, Cairn Energy’s chief executive Bill Gammell said he expected the company to receive approvals for the deal by 15 April, a deadline set by both companies to seal the transaction.

Shares in Vedanta Resources were up 2.7% at 2,477 pence, while Cairn Energy rose 1.2% to 468 pence.

Open offer

Consent for the open offer to buy more shares from public shareholders in Cairn India was also a necessary step before the deal could be finalized.

Indian iron ore exporter Sesa Goa Ltd , a unit of London-listed Vedanta, will make an open offer to public shareholders of Cairn India to buy up to a 20% stake in the Indian unit of the British company, per Indian rules.

Shares in Sesa Goa were trading up nearly 7% in the main Mumbai market that was down 0.2%. Cairn India was down 0.6%.

Sesa Goa shares surged after India’s top court lifted a ban on iron ore shipments from the southern state of Karnataka on Tuesday.

Vedanta has offered Rs405 a share to Cairn Energy for Cairn India stake. It will pay Rs355 to public shareholders of Cairn India in the open offer, excluding the non-compete fee of Rs50 a share being paid to Cairn Energy.

The final stake bought in Cairn India will depend on the response to the open offer for a up to 20% stake.