Cairn extends loan repayment by parent firm

Cairn India Ltd today said it has extended by two years the repayment of a controversial USD 1.25 billion loan it had extended to its parent group firm.
The extension follows delay in merger of Cairn India with its parent Vedanta Ltd that would have led to the USD 1.25 billion loan being written off.
"Cairn India Holdings Ltd (CIHL), an overseas subsidiary of Cairn India Ltd, has decided to extend maturity of the loan of USD 1.25 billion, which was given for a term of two years in May, 2014, to THL Zinc Ltd (TZL), an overseas subsidiary of Vedanta Ltd, for a further period of two years," the company said in a filing to the stock exchanges.

The company said the extension was "on arm's length at a revised rate of interest of LIBOR + 450 basis points (bps) in the first year and at LIBOR + 475 bps in the second year as compared to the existing rate of LIBOR + 300 bps."
The loan had become controversial in 2014 as Cairn had not disclosed extending of loan to its new parent Group. It came to light only in the analyst call in July 2014 but not before USD 800 million out of the total loan of USD 1.25 billion had already been disbursed.
The request from THL Zinc for a rollover too was revealed during an investor call following fourth quarter results last month.

Cairn India CFO Sudhir Mathur had at the conference call stated that a committee of independent directors would be going into the details of this rollover request including revision in terms.

Today, the company said the rollover "is on terms that are market standards including change of control provisions and will continue to be secured by a guarantee from Vedanta Resources."
"The return from the said loan will provide higher yield to CIHL compared to the return it is earning from its existing investments out of its cash and cash equivalents, which are in USD," the filing said
TZL is the holding company of the Vedanta Group's international zinc business that comprises of assets in South Africa and Namibia.

In September 2015, London-listed Vedanta Resources Plc, the parent firm of Vedanta, said the USD 1.25-billion loan was used to repay USD 800 million of principal and USD 450 million in interest on another inter-company loan.
In June last year, it proposed merging Cairn India with Vedanta Ltd. If the proposed merger goes through, it could mean that the USD 1.25 billion loan is written off.
Cairn had a cash balance of Rs 19,500 crore at the end of March 31, 2016.
In 2014, it had used its cash to buy back shares that helped Vedanta gain greater control of the firm. It bought 36.7 million shares for Rs 1,225 crore and extinguished them, resulting in promoter shareholding rising from 58.76 per cent to 59.90 per cent.

For the merger to go through, half of the minority
shareholders, who together make up for 40 per cent of the Cairn equity, have to approve the deal.
Post-merger, London-listed parent Vedanta Resources Plc's holding in Vedanta Ltd will drop to 50.1 per cent from 62.9 per cent at present.
Cairn India's minority shareholders will own 20.2 per cent and Vedanta minority shareholders 29.7 per cent in the merged entity.
In June last year, Vedanta Ltd had offered shareholders of Cairn India one ordinary share and 7.5 per cent redeemable preference share with a face value of Rs 10 each.

Navin Agarwal, Chairman of Cairn India, said: "I am pleased that the shareholders of Cairn India have approved the merger of Cairn India with Vedanta Limited. We are confident that the financial strength and diversified portfolio of Tier-I assets of the merged company, with strong growth potential, will provide de-risked earnings and stable cash flows and drive long-term value."
Sudhir Mathur, CFO and Acting CEO of Cairn India, said: "The shareholders of Cairn India have approved the merger with Vedanta Limited, and I am confident that they will benefit from exposure to Vedanta's diversified portfolio of assets while retaining the upside from Cairn's strong oil & gas assets."

The Scheme is now subject to the approval of the jurisdictional High Courts and other regulatory approvals and is expected to be effective by the end of this financial year.
The USD 2.3 billion all-share transaction was originally announced in June 2015 and the deal to create India's largest diversified natural resources firm, which could compete with BHP Billiton Ltd and Vale SA, was to close in March this year.
But winning over half of the minority shareholders including LIC, which was said to be opposed to the deal, was providing to be difficult and so Vedanta offered one equity share and four redeemable-preference shares with a face value of Rs 10 each.