 "Mayank Ashar")
Cairn India had $2.7 billion of cash on its accounts as of March 31. While analysts said the merger of Cairn India with parent Vedanta is largely for debt relief, Cairn India Chief Executive Mayank Ashar tells Kalpana Pathak, Aditi Divekar and Abhineet Kumar that the merger would be value accretive for the company and ensure greater access to capital to further its oil and gas development. Edited excerpts:
There has been concern with regard to the merger as Cairn stands to lose in terms of its robust balance sheet…
This deal is good for Cairn because today we have reliance only on a single commodity and our fortunes go up and down based on the commodity, which is quite volatile. The strategic rationale for this is that we go from a single commodity exposure to being part of India's national resource champion. What it allows the Cairn shareholders to do is swap a single commodity exposure to multiple commodities. The Vedanta asset portfolio is world class, good quality and long life assets. Also, Cairn brand, investment plans and management remain unchanged. We are also looking at how to enhance our portfolio of growth. This transaction gives us confidence to invest in the long haul.
But Cairn has been doing pretty well for itself. How will the deal help?
Would you put all your investments into one commodity? There are fundamental benefits of diversification. When oil prices are down, zinc is doing very well. You have Vedanta's assets… the aluminium business, copper business, power business. Commodities have gone through a lot of cyclicality in the recent past. So there is a strategic rationale to the merger.
Beyond that you are part of a very big successful enterprise. And that is positive. Indian companies play on the world stage now. To be the seventh-largest in the world with aspirations to go bigger is good. You have to look at Cairn not only in terms of how the balance sheet looked like in the last quarter but how will the company look like in the next few years.
Could you have utilised the cash that you are holding for further investments or acquisitions?
Cairn has had a rich balance sheet for a while and did not do any acquisitions. I believe acquisitions come with risk. However, I don't believe that with the merger, the acquisition window is closed for us. We always look at organic and inorganic growth. If there is something substantial tomorrow that is compelling, I think money for that acquisition will be there. Acquisitions per se don't create value. Good acquisitions create value.
Will the tax liability of $3.1 billion and the court case on the same be an impediment for the merger?
The tax issue is independent of this merger and sub-judice.
What happens to the $1.25-billion inter-company loan extended from Cairn to Vedanta?
The inter-company debt has been duly considered in arriving at the valuation of both Cairn India and Vedanta and this is adequately getting reflected in the swap ratio. Also, as per the accounting standards, while consolidating the accounts, the inter-company transaction gets eliminated. So, as of now, in the consolidated accounts of Vedanta, this transaction is getting eliminated.
There has been concern with regard to the merger as Cairn stands to lose in terms of its robust balance sheet…
This deal is good for Cairn because today we have reliance only on a single commodity and our fortunes go up and down based on the commodity, which is quite volatile. The strategic rationale for this is that we go from a single commodity exposure to being part of India's national resource champion. What it allows the Cairn shareholders to do is swap a single commodity exposure to multiple commodities. The Vedanta asset portfolio is world class, good quality and long life assets. Also, Cairn brand, investment plans and management remain unchanged. We are also looking at how to enhance our portfolio of growth. This transaction gives us confidence to invest in the long haul.
But Cairn has been doing pretty well for itself. How will the deal help?
Would you put all your investments into one commodity? There are fundamental benefits of diversification. When oil prices are down, zinc is doing very well. You have Vedanta's assets… the aluminium business, copper business, power business. Commodities have gone through a lot of cyclicality in the recent past. So there is a strategic rationale to the merger.
Beyond that you are part of a very big successful enterprise. And that is positive. Indian companies play on the world stage now. To be the seventh-largest in the world with aspirations to go bigger is good. You have to look at Cairn not only in terms of how the balance sheet looked like in the last quarter but how will the company look like in the next few years.
Could you have utilised the cash that you are holding for further investments or acquisitions?
Cairn has had a rich balance sheet for a while and did not do any acquisitions. I believe acquisitions come with risk. However, I don't believe that with the merger, the acquisition window is closed for us. We always look at organic and inorganic growth. If there is something substantial tomorrow that is compelling, I think money for that acquisition will be there. Acquisitions per se don't create value. Good acquisitions create value.
Will the tax liability of $3.1 billion and the court case on the same be an impediment for the merger?
The tax issue is independent of this merger and sub-judice.
What happens to the $1.25-billion inter-company loan extended from Cairn to Vedanta?
The inter-company debt has been duly considered in arriving at the valuation of both Cairn India and Vedanta and this is adequately getting reflected in the swap ratio. Also, as per the accounting standards, while consolidating the accounts, the inter-company transaction gets eliminated. So, as of now, in the consolidated accounts of Vedanta, this transaction is getting eliminated.
