State-owned Oil and Natural Gas Corp (ONGC) has over a month to decide if it chooses to exercise its pre-emption or right of first refusal to block sale of majority stake in Cairn India to Vedanta Resources.
Vedanta is paying $8.48 billion to buy Edinburgh-based Cairn Energy's 40 to 51 per cent stake in Cairn India, which has 10 oil assets in the country including the giant Rajasthan oilfield.
"ONGC can make a counter-offer or exercise its self- claimed pre-emption right in certain properties of Cairn India before the Extraordinary General Meeting (EGM) called by Cairn Energy Plc in early October to ratify the sale to Vedanta," a source associated with the development said.
While Vedanta's open offer to minority shareholders of Cairn India for acquisition of a further 20 per cent shares puts September 7 as the cut off date for any rival offer, ONGC can block the deal before EGM of Cairn Energy Plc approves the sale.
The state-owned firm has between 22.5 per cent and 40 per cent interest in Cairn India's three producing assets - Rajasthan block, Ravva oil and gas field and CB/OS-2 in Cambay basin.
ONGC is also a partner in five of the seven exploration blocks Cairn India holds including the gas discovery block of KG-DWN-98/2 that sits next to Reliance Industries' prolofic KG-D6 in Krishna Godavari basin.
Cairn India holds 100 per cent in the remaining two blocks - MB-DWN-2009/1 in Mahanadi basin and KG-OSN-2009/3 in shallow waters of KG basin.
"ONGC has analysed the production sharing contracts for all the Cairn India properties. While none of the three producing assets provide for its prior consent in case of sale by Cairn India, the exploration blocks which were awarded in New Exploration Licensing Policy (NELP) rounds provide for prior consent in case of change of control," the source said.
However, the Joint Operating Agreements (JOA) for each of the property gives partners the pre-emption or right of first refusal (ROFR) in case anyone of them was to exit.
"ONGC is using the clause in the JOA to state that it has pre-emption rights," he said, adding that this can be disputed as the ROFR is only in case Cairn India exits from a property which is not the case in the Vedanta deal.
Cairn India will continue to exist as an independent company and operate the fields and only its corporate ownership is changing.
The source said Cairn Energy has called the EGM in early part of October and should ONGC decide to exercise ROFR or make a rival bid, it has to approach the UK based company's management before the shareholders meeting and then go to SEBI for blocking of Vedanta open offer which opens on October 11.
