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Currently, Vedanta holds 59.88% stake in Cairn India.
Currently, Vedanta holds 59.88% stake in Cairn India.

Cairn India expects merger with Vedanta by March-end

Under the proposed merger, a Cairn India shareholder will get one Vedanta equity share and 7.5 preference shares for every Cairn India share

Mumbai: Cairn India Ltd chairman Navin Agarwal on Thursday said his company expects to merge with parent Vedanta Ltd by the end of March, even as Life Insurance Corp. of India (LIC), a key shareholder in both companies, is yet to give its approval for the merger.

Last June, Vedanta Ltd, the flagship firm of Vedanta Resources Plc, decided to merge with its unit Cairn India. The company wanted to complete the merger by June.

“Your company continues to work towards completion of merger with Vedanta," Agarwal told shareholders at the firm’s 10th annual general meeting in Mumbai. “Your company will get access to Vedanta’s Tier I metal and mining assets, which are well-invested, low-cost and have a long life," he said.

The merger plans hit a roadblock after the income-tax department froze Cairn Energy Plc’s 9.5% stake in Cairn India.

The tax department said the merger can happen only after the freeze is lifted and tax issues addressed. The tax department said the merger can happen only after the freeze is lifted and tax issues addressed.

In January 2014, the tax department slapped a 10,247-crore tax claim on Cairn Energy for alleged capital gains of 24,503.50 crore made in 2006 while restructuring the business of Cairn India.

In 2011, Cairn Energy Plc sold 58.5% of Cairn India to Anil Agarwal’s Vedanta Resources, for $8.67 billion. Currently, Vedanta holds 59.88% in Cairn India.

While Cairn India has approached Delhi high court, Cairn Energy is contesting the matter through an international arbitration.

LIC, which owns 9.06% in Cairn India and 3.9% in Vedanta, has in the past expressed concerns over valuation and debt of the merged entity. As recently as 13 July, LIC issued a statement denying it had given its approval for the merger. LIC is the single largest domestic minority shareholder in Cairn India and its approval is crucial for the merger.

“The merger is not favourable for Cairn India shareholders. Cairn has substantial cash on its books and Vedanta is in debt. There is a strong view that the sole purpose of this merger is to deleverage Vedanta. Besides, Cairn has lent money to Vedanta at a low rate of interest," said Vaibhav Chowdhry, an analyst with KRChoksey Research.

In 2014, Cairn India Holdings Ltd had granted a loan of $1.25 billion to THL Zinc Ltd, a unit of Vedanta for a period of two years. This the loan was rolled over for another two years.

“Merger at this point will certainly be a raw deal for Cairn India shareholders. Had Vedanta proposed to buy Cairn India two years back it would have been a good deal. Post the crude oil price slump, Cairn India’s share price is considerably down. The deal can be justified only if Vedanta gives 2-3 shares for each Cairn India share held," said an analyst with a domestic brokerage on the condition of anonymity as he is not allowed to speak to reporters.

Over the last two years, Cairn India’s market cap has halved— slipping from 69,485 crore on 13 June 2014 to 33,110 crore on Thursday. Vedanta Ltd announced the merger with Cairn on 15 June 2014.

On Thursday, shares of Cairn India rose 0.54% to 176.60 and Vedanta fell 2.78% to 157.25 on BSE, while Sensex shed 0.74%.

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