Cairn India may have to seek fresh shareholder nod

Cairn Energy Plc might have to seek shareholder approval afresh as its proposed stake sale to Vedanta Resources Plc may extend beyond the April 15 deadline.

The government on Thursday said a decision on clearing the $9.6 billion deal is three weeks away.

Cairn Energy has been asking the government to clear the proposed stake sale by February 20.

Assuming the Cabinet Committee on Economic Affairs does give its nod by that date, Vedanta’s subsidiary Sesa Goa Ltd will have to make an open offer to Cairn India shareholders — a process that would take a minimum of 55-60 days. That could stretch things beyond April 15.

“It’s not easy for the government to work on a tight schedule for the deal,” S Jaipal Reddy told reporters after meeting Cairn Energy CEO Bill Gammell. “I have told them (Cairn-India) that we are trying to deal with the issue as quickly as possible. The matter will be taken to the Cabinet and it will be looking at the issue in about three weeks’ time,” said Reddy.

This could also come as an embarrassment for Gammell. Earlier in the day, he told reporters that Cairn Energy will not go back to its shareholders seeking an extension of the April 15 deadline by which the transaction is to conclude.

Though this delay might not force the deal to be called off, experts believe it would sully the country’s image as a preferred destination, with foreign investors already jumpy on New Delhi’s long decision-making process.

“I don’t think this will result in the deal being called off,” said Arvind Mahajan, executive director at KPMG. “But the government needs to see that these delays does not send the right message to foreign business community,” he added.

Reddy also said that British Prime Minister David Cameron has sought early clearance of the deal from Prime Minister Manmohan Singh.    

 “Such pressures are natural, but we have to take care of our concerns,” he said.

It was on August 16 last year that Anil Agarwal-controlled Vedanta proposed buying 51-60% of Cairn India Ltd for about $8.5-$9.6 billion in cash, but the deal has been delayed due to lack of government and regulatory approvals in India.

The petroleum ministry has asked Cairn India to agree to a change in the clause of production sharing contract with ONGC that will result in sharing of royalty between ONGC and Cairn India.

Cairn India has rejected the conditions outright as it will reduce the valuation of the company before the proposed share sale to London-listed Vedanta resources.

ONGC will pay $3 billion over the life cycle of Rajasthan field as royalty under the existing contract.

The state-owned company has 30% stake in the Mangala Oil field in Rajasthan, but pays 100% royalty on the production of oil from that field. It has proposed recovering the `14,000 crore royalties that it will have to pay over and above its 30% share from the Rajasthan fields from the sale of oil.

On its part, Cairn India says the production sharing contract absolves it from sharing any royalty burden on crude oil produced from these fields.

The government has also asked Anil Agarwal-controlled Vedanta group to settle all ongoing arbitration in the government’s favour and has also asked Cairn India to give up its right for dispute resolution in future. Vedanta Resources maintains that it cannot surrender its right to challenge government rulings in future.