April 7: Cairn Energy Plc on Thursday extended the deadline for the $9.6 billion deal in which the U.K.- based oil exploration company is selling its stake in its Indian subsidiary to Vedanta Resources. This extension follows the Union cabinet’s decision on Wednesday to refer the proposed deal to a group of ministers. Cairn Energy’s sale of a 40 to 51 per cent stake in its Indian subsidiary and the open offer by the Vedanta group for acquisition of an additional 20 per cent through its Indian subsidiary Sesa Goa were to be completed by April 15. The deadline has now been pushed to May 20. However, experts don’t see the approval coming from the government that soon and the company may be forced to again revise the deadline.
The shares of Cairn India were down by 2.02 per cent on the BSE over uncertainties on the deal. The deal has been mired in uncertainty since August 2010 when Cairn Energy Plc decided to sell its stake in Cairn India to Vedanta due to lack of regulatory approval.
The problem faced by Cairn to get regulatory approval for the deal has been seen as one of the reasons for the lukewarm response to the latest round of auction of gas and oil blocks under NELP that were held last month. Investors feared government intervention in projects and the problems being faced in existing ventures. At the centre of the controversy is the royalty issue for the Rajasthan block, from which Cairn India derives most of its revenues.
Cairn India holds 70 per cent stake in Barmer oil field and the rest is owned by ONGC. However, ONGC pays 100 per cent royalty on the entire crude oil produced from the Rajasthan oil fields, although it has only 30 per cent stake. The government now wants Vedanta to share royalty payments. However, Cairn doesn’t want to agree to such a condition as it could impact the valuation of the deal. Vedanta has received Sebi clearance to commence the open offer for up to 20 per cent of the shares of Cairn India.