Cairn scrip may falter on debut

Cairn India, which raised Rs 5260 crore in an initial offer last month, may fall 9 per cent from the sale price at its trading debut tomorrow on concerns that oil production may be delayed.

The unit of Edinburgh-based oil-explorer Cairn Energy may debut at Rs 145 apiece ($3.27), Rs15 lower than the price sold to investors, according to a Bloomberg News survey of 10 analysts and investors, in which all of them predicted that the share will fall in the opening trade.

Cairn's sale document said the company's first flow of oil from fields may get delayed beyond the 2009 target date because a state-owned company designated by the government to buy the crude has not started planning a pipeline.

The appointed buyer has demanded that Cairn share the cost, sparking a dispute that causes concern, said analyst Praveen Martis.

"The company has to actually execute and match up to the aggressive target dates they have set for themselves,'' said Martis, an energy analyst at UK-based Wood Mackenzie Consultants.

"They have stick to their development plans and complete the projects successfully.'' Cairn Energy last month agreed to sell shares at the lower end of its targeted price range of Rs 160 to Rs 190.

The company received orders for 1.14 times the shares it offered, the National Stock Exchange website said on December 16. The pipeline, which Cairn says is to be built by a unit of Oil & Natural Gas Corporation, is 498 kilometers long and expected to cost Rs 2000 core.

Oil & Natural Gas's demand that Cairn share the cost of the pipeline poses a risk that the pipeline may not be ready in time when production begins, Jal Irani, an analyst at Macquarie Bank said in a November 28 note to clients.

Cairn India disagrees with analysts Martis and Irani and says the pipeline will be ready in time to transport oil from fields in Rajasthan in western India to a port in neighboring Gujarat state for shipment to refineries.

"Construction work starts this year on the key Rajasthan development in preparation for production in 2009,'' Rahul Dhir, Cairn India's chief executive, said in an e-mail sent on January 5. Cairn Energy shares in London have fallen 13 per cent since December 15, when the company's Indian unit's share sale closed.