Vedanta agreed to Petronas offer in 5 minutes

It took a little over five minutes for the $10 billion Vedanta Resources to agree to a price to buy stake of Malaysian oil giant Petronas in Cairn India, a development analysts say will help the resources major  “almost certainly” get what it has been doggedly seeking for over eight months.

Last Monday, Anil Agarwal-controlled Vedanta received a call from Bank of America Merrill Lynch, the merchant banker entrusted by Petronas to sell its shares.

Petronas, which since 2006 had been purely a financial investor in the Indian arm of the Scottish oil and energy explorer, was seeking to sell its shares as the state-owned company “re-looked  its portfolio”, according to an executive at the Malaysian company.

The executive did not wish to be identified as he is not authorised to speak to the media.

“We were happy with the price,” recounts a Vedanta executive familiar with the development, adding, “and so it was agreed”
An email sent to Bank of America Merrill Lynch went unanswered.
Vedanta’s decision to buy Cairn India for up to $9.6 billion under the original deal has been help-up by New Delhi which is divided over how to resolve the royalty issues. State-owned ONGC, which holds 30% participatory stake in Rajasthan oil blocks, pays 100% royalty to Rajasthan government.

The oil ministry wants this royalty agreement to be tweaked and wants royalty costs to recover from the oil field’s total revenue before profit is calculated. Both Vedanta and Cairn disagree with this proposal, as they believe it would make the deal financially less attractive.

“They have secured an entry now in the oil and gas sector,” said S P Tulsian, an independent stock analyst.

“It’s almost certain that they have some assurance that the deal will be cleared (by New Delhi). (Or else) I don’t see why would they take such an aggressive step,” said a London-based analyst who tracks Cairn Energy.

Vedanta was eyeing to buy the entire stake of the company but for some reason could manage only 10.5%. The executive, who did not want to be named because of the sensitivity of the deal, did not share details on why the company could not buy the remaining 4.5% share which was eventually picked by foreign institutional investors.

The executive declined to share on what prompted the company to buy Petronas stake but analysts say that Cairn India’s “relatively small free float” could have “influenced the company to buy the shares”

Before Vedanta’s purchase of Petronas stake, Cairn Energy owned 62.4% of Cairn India, with Petronas having 14.9% shares. This left Institutions with a 20.2% stake and individuals with 2.5% shares.

After Tuesday, institutions’ share has increased to 24%, still making analysts doubt if the open offer — (under which Vedanta has offered to buy up to 20% —will see all investors tendering their shares.

“It is highly unlikely that the open offer (which closes on April 30) will see full interest from investors,” said Tulsian, adding that he does not believe Vedanta’s holding will come close to 70%.
Later in the day, Vedanta said in a statement: “After obtaining all the necessary government approvals and consents, Vedanta looks forward to the completion of the Cairn India acquisition and would own 51-70.4% of Cairn India.”

By the end of Tuesday, Vedanta had picked a 10.5% stake for $1.5 billion by buying Petronas shares of Cairn India at Rs331 a share. At the end of the day, Cairn India scrip rose 3% to Rs354, valuing the company at $15 billion.