Vedanta and Cairn India deal modified: Non-compete fee removed

Stocks

oi-Shoaib MD

By Shoaib Md

Published: Tuesday, June 28, 2011, 11:59 [IST]

The Vedanta-Cairn Energy deal was again modified in an effort to make it successful. Now the two companies have agreed to remove the non-compete fee of Rs 50 per share.

This will a cut of approximately US$ 600 million for Cairn Energy. The total consideration payable for the 40% stake in Cairn India will now be reduced from US$6,651 million to US$6,023 million.

Also the entire transaction will be completed in two tranches. Under the new deal Vedanta will acquire a 10% stake in Cairn India on or before 11th July 2011.

Following this, the Vedanta Group will hold a stake of 28.5% in Cairn India. This includes the acquisition of a 10.4% stake from Petronas and an additonal 8.1% stake acquired via the open offer route.

Cairn Energy will continue to hold a controlling stake of 52.2%. The acquisition of the remaining 30% stake by Vedanta is subject to necessary consents and approvals from the Government of India. On completion of this deal, Vedanta will become a diversified miner.

Commenting on this Anil Agarwal, Chairman, "Vedanta believes this initial 10 per cent purchase is a further demonstration of its commitment to India".

Though there was no reasons explained related to changes in the deal, many analysts believe that the changes could be linked to an expected decision on royalty payments, as this will alter the financials of the deal.

The deal between the two companies was made last August but completion has been held up over the issues with state-run oil and gas explorer ONGC which has a 30% stake holding in the oil field. Though the state-run company, ONGC, holds only a third of the stake, it pays 100% of the royalty.

The oil ministry has been voicing that the royalty burden should be shared between the two companies – ONGC and Cairn India – a move opposed by both Cairn and Vedanta.

Cairn Energy had extended the deadline twice for closing the stake sale — first on April 15 and then May 20. A day before the last deadline expired, the two firms agreed to extend it indefinitely.

A government source told Reuters, that a the panel consisting of ministers have recommend the government that the operators of Cairn Energy's key Indian oil field share the royalty burden in proportion to their stake in the project. If this is is true then Vedanta will inherit 70% of the royalty charges.

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