Minority shareholders at AGM unhappy with firm’s decision to accept government conditions on stake sale to Vedanta.
Cairn India will, on September 14, declare the results of a postal ballot of its shareholders on conditions set by the Union government regarding the proposal to sell majority stake in the company to London-listed Vedanta Resources.
This June, the government approved parent company UK-based Cairn Energy's proposal of selling stake in Cairn India to Vedanta. The conditions were that the companies must agree to bearing a part of the royalty on crude oil output from the prolific Rajasthan block and also withdraw arbitration against the government on tax regarding crude sales.
"The board views the ballot, which will be declared on September 14, as the most appropriate and democratic way to determine this decision," Cairn India’s non-executive director, Jann Brown, told shareholders here.
Cairn Energy holds 52.2 per cent in Cairn India and Vedanta about 28.5 per cent. Cairn Energy is selling a 40 per cent stake at Rs 355 a share in Cairn India in a $6.02 billion deal to Vedanta.
State-run Oil and Natural Gas Corporation (ONGC) holds 30 per cent in the Rajasthan block and pays the entire royalty on crude production from the block. The government wants royalty to be recovered from revenue generated from the sale of crude oil.
Cairn India, which holds 70 per cent interest in the Rajasthan block, does not pay any royalty. The Cabinet Committee on Economic Affairs this June approved the Cairn-Vedanta deal on the condition that Cairn would deduct the royalty paid by ONGC from revenues from the sale of produce from the field. The CCEA had also said Cairn India must pay a Rs 2,500 per tonne cess on its 70 per cent share of oil production. Cairn already pays cess to the government, albeit under protest.
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This cost-recovery of royalty will lower Cairn India's profitability, rued shareholders at the annual general meeting.
"The government's conditions are not good and it is not a fair deal for minority shareholders. These conditions were made after the Sesa Goa open offer was completed and the minority shareholders could not participate in that. Besides, Vedanta has been at an advantage by not paying the Rs 50 non-compete fee," said Piyush Shah, who holds 5,550 shares.
Dinesh Lakhani, who holds 8,000 shares, said, “This postal ballot is merely an eyewash, as Cairn and Vedanta have told the government they are accepting the conditions.Cairn and Vedanta hold 80 per cent together. In a postal ballot, hardly five per cent shareholders participate. We want the management to make it a democratic process. Cairn Plc and Vedanta should not vote.”"
Adding: “During the open offer, the company said it is not accepting government's conditions. But post the open offer, it has accepted the conditions. This will have tremendous bearing on Cairn India's profit.”
Shareholders said only minority shareholders should be allowed to vote in the postal ballot. "The company has not given any dividend and their interest income has come off significantly. The value of shares will come down and something needs to be done about it," said another shareholder.
Meanwhile, Cairn India, said Brown, supports a vision to produce 240,000 barrels per day, equivalent to 30 per cent of India's current crude production, subject to further investments, partner and regulatory approvals. It is now producing 125,000 barrels per day.
"Without the active support of the government of India and ONGC, it will not be possible for Cairn India to exploit the full potential of the resource base in Rajasthan. With Cairn India now accounting for more than a fifth of India's total crude oil output, it has made a key contribution to savings in foreign exchange through reduced crude oil imports," Brown said.
Bill Gammell, chairman of Cairn India, could not make it to the meeting due to a pressing personal matter, said Brown.