SEBI approves the Vedanta-Cairn deal

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SEBI approves the Vedanta-Cairn deal
Cairn India: Quotes, News
BSE 231.85BSE Quote3.95 (1.70%)
NSE 232.10NSE Quote3.65 (1.57%)
Indian capital market regulator, SEBI, cleared Sesa Goa's open offer for the shareholders of Cairn India, the Indian oil and gas explorer. This brought the London-listed Vadanta Resources, metal and mining company, near to its goal of acquiring, control of Cairn India.

According to media reports, the deal was cleared by SEBI after Vedanta agreed to provide more disclosures. It has been also stated that few changes were made in the share purchase agreement that it has entered with UK based Cairn India. The open offer will also carry disclosure about the unresolved issues with ONGC, the state run oil company, and that this could impact the stock price.

The earlier terms set by Vedanta secured that what ever may be the market reactions to the open offer, Vedanta and its subsidiary, together will have control of at least 51% stake in the company.

Sesa Goa will now launch an open offer within 15 days, following the takeover norm. The open offer has been priced at INR 155 a share and aims at buying a 20% stake in Cairn India.

In August 2010, Anil Aggarwal, the London-based billionaire, led Vedanta Resources had made a deal of Cairn India worth USD 9.6 billion. With this deal, Vedanta would get 60% of Cairn Energy at INR 405 a piece, which includes INR 50 a share as non-compete fees.

The deal had a mix of debt and cash. Standard Charter was expected to be the lead banker for raising the debt of nearly USD 6.5 billion. Now the deal requires government approval i.e. clearance from the Cabinet Committee on Economic Affairs (CCEA). Investment bankers state that Vedanta can launch the offer as it has the approval from SEBI.

ONGC drama

One of the major assets for Cain India is the Rajasthan Block, which is also among one of the biggest onland oil block. Cairn India will complete the first full year of producing oil from its Rajasthan block with a net profit of nearly INR 6,600 crore on March 31. This figure is projected to jump by 34% next fiscal year.

The Rajasthan block is shared between Cairn India and ONGC on a 70-30 ratio. ONGC had invoked what is known as its pre-emptive right under agreements it had signed with Cairn and the government.

State-owned, ONGC is not happy that for owning 30% of the field it pays 100 % of the royalty. ONGC states “the block is not viable for it on the current royalty terms." It wants Vedanta to pay a share of the royalty. ONGC's liability is estimated at Rs 18,300 crore at $70-a-barrel crude oil price for about 20 years, according to analysts.

Revaluing the whole deal to adjust the royalty payment will make the acquisition sour for Vedanta. But as there is a chance that the government will send the company to get the approval from ONGC, stock investors must make their risk assessment before investing in it.

OneIndia Money

Read more about: acquisition, sebi, oil, ccea
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