Vedanta buys $1.5 bn stake in Cairn India: Source
New Delhi: Mining group Vedanta Resources Plc, which is struggling to get government nod to take over Cairn India, Tuesday bought 10.5 percent stake in the company from Malaysia's Petronas.
Malaysia's state oil firm Petroliam Nasional Bhd (Petronas) in a statement said it has "sold all of its 14.94 percent holding (283.4 million shares) in Cairn India ... for a total consideration of approximately USD 2.1 billion."
About 200 million shares (or 10.5 percent) of these were bought by Sesa Goa, a unit of Vedanta, at Rs 331 apiece, sources in know of the development said.
Petronas' remaining stake of up to 4.4 per cent was picked up by Indian and foreign institutions in a sale arranged by Bank of America Corp.
Vedanta had in August last year announced buying of 40 to 51 percent stake in Cairn India from Edinburgh-based Cairn Energy Plc but the deal is yet to get government approval.
As part of the transaction, Sesa Goa made an open offer to buy an additional 20 percent stake in Cairn India at Rs 355 per share.
The open offer which opened on April 11 was not expected to get much response because of the very narrow difference in price that Vedanta group is offering and Cairn India's trading price on the bourses.
Cairn India stocks closed 2.29 percent higher at Rs 344.25 on the Bombay Stock Exchange.
Analysts said income earned from off-market share sale like tendering shares in an open offer, is subject to higher tax rate when compared to a market sale like the one done by Petronas. So investors would offer their shares in the open offer only when Cairn scrip is trading below Rs 325.
Sources said by buying Petronas shares, Vedanta has ensured it will have majority stake in Cairn India irrespective of the outcome of the open offer that closes at month end.
For Petronas, one of the first to invest in Cairn India, it was a desperate sale. It had been frustrated at growth of the company being stiffled by bureaucratic hurdles like the one oil ministry had erected in not allowing company to raise output from its mainstay Rajasthan block.
Cairn India is producing 125,000 barrels of oil per day from the Mangala oilfield, the largest in Rajasthan block.
Output can be raised to 150,000 bpd without any investment but oil ministry has been sitting on approval for months now.
Also, it has thrown new challenges in form of seeking to change contract for the Rajasthan fields to make Cairn India pay a part of royalty on crude oil produced which otherwise is purely a liability of state-owned Oil and Natural Gas Corp.
The royalty dispute has primarily held up approval for Vedanta.
Vedanta is paying Rs 405 per share to Cairn Energy but only Rs 355 apiece to Cairn India's minority shareholders. The price offered to Cairn Energy includes a Rs 50 per share non-compete fee to keep the Edinburgh-based firm out of India.
Petronas had in December 2006 invested about USD 800 million to buy a little less than 10 percent stake in Cairn India when it was listed on the Bombay Stock Exchange through an initial public offering.
It bought an additional stake in a preferential allotment in March 2008 and a further 2.3 percent stake in Cairn India in October 2009, taking its total to 14.9 percent.
Billionaire Anil Agarwal-controlled Vedanta is following BHP Billiton's footsteps to diversify from mining to oil and gas, through the acquisition of Cairn India.
Vedanta and Cairn Energy have extended the deadline to seal the deal to May 20, after they failed to get the approval from the Indian government within the previous deadline of April 15.
The USD 9.6 billion deal would be the biggest acquisition in the Indian oil and gas sector.
Earlier this month, the Cabinet Committee on Economic Affairs (CCEA) referred the transaction to a group of ministers (GoM) to find a solution to vexed issue of royalty payments.
ONGC, which has a 30 percent stake in the Rajasthan block, pays 100 percent of the royalties. Petroleum Ministry wants the royalty burden between ONGC and Cairn India by making it cost recoverable.
Both Cairn and Vedanta have opposed that move. Any changes in the royalty structure will impact valuations and may jeopardise the deal, analysts have said.
The offer by Sesa Goa to buy up to a 20 percent stake in Cairn India was launched on April 11 and closes on April 30.
Vedanta bought the 11 percent stake at Rs 331 a share, reflecting a discount of 1.6 percent to Cairn India's closing price on Monday.
Bank of America Merrill Lynch represented Petronas in the deal.