Feb. 7: London-listed mining group Vedanta Resources is running against time to close the $9.6 billion deal to acquire majority stake in Cairn India. The government approval for the transaction has been held up due to issues raised by state-owned Oil and Natural Gas Corporation (ONGC).
The deal, involves Vedanta acquiring 40 to 51 per cent stake from UK’s Cairn Energy Plc and then making an open offer to buy an additional 20 per cent from minority shareholders of Cairn India, is to be completed by April 15. But, it has not yet been able to announce the open offer in the absence of government nod for the transaction, sources in know of the development said.
As per market regulator Security Exchange Board of India’s (SEBI) regulation, an open offer requires 55-60 days to complete and Vedanta was expecting the nod by Monday so as to have a small buffer for any contingency.
But the approval is stuck as ONGC by virtue of its stake in eight out of the ten oil and gas properties held by Cairn India, claims pre-emption rights. It wants the issue of excess royalty it has to pay on Cairn India’s mainstay Rajasthan block to be addressed before giving its no-objection.
Sources said the oil ministry has made resolution of the royalty issue as on one of the 11 pre-conditions for giving an in-Principal nod for the transaction.
Oil secretary, Mr S. Sundareshan on Sunday had met chief executives of Vedanta and Cairn, who opposed three of the 11 conditions, they said.
Cairn/Vedanta is particularly opposed to ONGC's demand for recovering the royalty before profits from sale of Rajasthan oil as it will lower Cairn India’s profitability and valuation.
The Rajasthan block, which gives Cairn India 90 per cent of its valuation, is a losing proposition for ONGC, as it has to pay 20 per cent royalty to the state government on the entire output from the field, even though its share from production is only 30 per cent.
Cairn India does not pay any royalty on the crude and has even contested the payment of Rs 2,500 per tonne cess on its 70 per cent share.