In the biggest-ever domestic takeover in the oil and gas industry, Vedanta Resources Plc is likely to announce the buyout of a controlling stake in oil explorer Cairn India through its Edinburgh-based owner, Cairn Energy Plc, on Monday.
At current valuations, the deal is estimated to be worth $8 billion. Cairn Energy owns 62.4 per cent in Cairn India, with Malaysia’s Petronas holding another 14.94 per cent in the Bombay Stock Exchange-listed company.
After Mukesh Ambani’s Reliance Industries, Cairn India is the country’s second-biggest private sector producer. Its Mangala field in Rajashthan, which went on stream last August, is producing 125,000 barrels a day, with potential to go up to 240,000 barrels a day.
The deal would see the London Stock Exchange-listed metal player enter the crude oil business. Upon acquisition of majority stake, Vedanta Resources will have to make an open offer for an additional 20 per cent.
Post the deal, Vedanta will be the second- largest mining firm in the world, after BHP Billiton, to also have an interest in oil. “Cairn India’s performance in Rajasthan has always made it a promising takeover target. The deal will work well for the company,” said a Mumbai-based analyst, on condition of anonymity.
Vedanta Resources, on its part, has sought agreement from Goldman Sachs, Barclays and JPMorgan to finance the deal via a combination of dollar and pound debt, said people close to the ongoing negotiations
It is expected that Vedanta will take at least 50 per cent stake and then go in for an open offer, making it a majority equity holder. The Vedanta group had net cash and cash equivalents of $7.2 billion (Rs 33,120 crore) as on this March, of which $3.13 billion (Rs 14,380 crore) was in the books of Sterlite Industries and $1.09 billion in Sesa Goa (another India-listed subsidiary). In case of Sterlite, the company had cash and investments worth Rs 23,642 crore and debt of Rs 9,260 crore as on March.
The deal may require a go-ahead from the Indian government, since production sharing contracts with it require a company to take permission for any change of hand.
The issue whether Oil and Natural Gas Corporation (ONGC), the government nominee, would also have a first-right to refusal for operatorship of the fields where it is a partner with Cairn India remains a gray area. Cairn India operates two producing blocks (Ravva and CB/OS-2), where ONGC has majority participating interests.
On Friday, Cairn India’s scrip closed at a new high of Rs 355.45, up 4.4 per cent on talk of a possible buyout.
