Vedanta denied at altar again; open offer stays

For the nth time on Wednesday, the government dashed the expectations of Anil Agarwal, the chairman of Vedanta Resources, of getting an early clearance for the London-listed mining giant’s proposed $9.6 billion takeover of Cairn Energy Plc’s Indian assets.

The Cabinet Committee on Economic Affairs (CCEA) referred the deal to a group of ministers (GoM) headed by finance minister Pranab Mukherjee, after deep divisions surfaced in the Cabinet on how to resolve a bitter dispute over royalty payments.
S Sundareshan, secretary, petroleum ministry, said late Wednesday that he expects a decision in the “coming weeks.”

This decision — or rather indecision — by New Delhi is a serious setback to one of the largest cross-border deals in the country as it is already being seen as a barometer for Manmohan Singh’s government if it can take bold decisions.

More importantly, experts believe any delay could also defer plans of Sesa Goa Ltd, a unit of Vedanta, to launch its open offer for 20% stake in Cairn India.

Sesa Goa got an approval from Sebi, the market regulator, on Tuesday, which allowed it to go ahead with its plan of buying shares from the open market at `355 apiece from April 11. The offer closes on April 30, and is managed by JM Financial Consultants Pvt Ltd.

A spokesperson for Vedanta Resources said the company “stands by its plan and will go-ahead with its decision of buying shares”.

However, experts believe that since the open offer is “conditional”, any delay in government approvals could push back Vedanta’s plans of buying shares from the open market.

“This is a new precedent,” said Jayant Thakur, a chartered accountant at Mumbai-based Jayant M Thakur and Co.
“A conditional open offer will mean that the plans to go-ahead with an open offer would have to wait until all government approvals are in place,” explained Thakur.

In Delhi, petroleum minister Jaipal Reddy said the deal has “too many complex issues” and hence has been referred back to a committee of ministers at a Cabinet meeting on Wednesday.    

“There are some complex issues. The cabinet committee felt such a decision should not be taken in a hurry,” Reddy told reporters. On the deadline looming large for Vedanta to complete the deal, Reddy added: “I do not know about deal deadlines.”

“We are ready to sit and negotiate with the government. Chairman (Anil Agarwal) has already said that they should delink the deal from the royalty dispute. It is pathetic to see the government not taking a decision,” an executive from Vedanta told DNA Money.
The oil ministry wants renegotiation of royalty payments made by state-owned ONGC, which, despite holding 30% stake in Rajasthan block, pays 100% royalty on production to the Rajasthan government.

This is not agreeable to Vedanta and Cairn as the two companies believe that any change in financials would make it less appealing to investors.

Wednesday’s delay has made Vedanta officials jumpy as the company is perilously close to the April 15 deadline for shareholder approval to the deal.

Cairn Energy, the Scottish Oil major, has already said that it does not intent to go back to the shareholders to seek an extension.
It was on August 16 last year that Vedanta announced its decision to buy 51%-60% of Cairn India for about $8.5 billion to $9.6 billion in cash.