Quick clearance of the deal will send right signals to investors

In the wake of Cairn Energy forming a panel to secure the interest of minority shareholders in the sale of its Indian interest, its suitor Vedanta on Monday ruled out raising the open offer price for minority stakeholders.

Its open offer itself failed to take off on Monday in the absence of clearance from the Securities and Exchange Board of India.

Vedanta is paying up to $8.48 billion for 40-51 per cent stake in Cairn India that operates the country's largest oilfields, and its group firm Sesa Goa was to make an open offer on Monday for an additional 20 per cent stake at Rs.355 a share to minority shareholders of the target firm.

The open offer price is Rs.50 less than what Vedanta is offering to Cairn India's parent Cairn Energy.

“We have given a lucrative offer and that offer we stand by,” Vedanta Chairman Anil Agarwal told reporters here.

He clarified that Rs.405 a share offer to Cairn Energy included a non-compete fee, under which Cairn would not compete with Vedanta in India, Sri Lanka and Bhutan for the next three years.

The Rs.50 a share premium was “very important” to Vedanta as “we wanted Cairn India to have exclusivity (in operations) in India and neighbouring countries,” he said. “Non-compete fee is important for us because we do not want Cairn Energy to work in our area,” he said.

Cairn Energy recently formed a two-member panel to safeguard the interests of its minority shareholders, after analysts raised concern over the difference in the offer price. Vedanta group firm Sesa Goa could not go ahead with the open offer, slated for Monday, for want of approval from SEBI.

Mr. Agarwal said SEBI normally took 45 to 60 days to approve an open offer and the market regulator had made ‘normal inquiries' that Vedanta had replied. “Without SEBI approval we cannot move forward.”

The deal is contingent on Vedanta completing the Indian offer before April 11, 2011. Shareholders of Cairn Energy, which holds 62.38 per cent stake in Cairn India, last week approved the sale of majority stake to Vedanta. London-listed Vedanta Resources is expected to seek shareholders' approval by this month end. SEBI may be holding up the approval for the open offer after Oil Secretary S. Sundareshan wrote to the market regulator stating that the deal was contingent upon government giving its nod for transfer of control of strategic assets like 6.5 billion barrels Rajasthan block. The government approval, Mr. Sundareshan last week stated, might come by December.

He also ruled out taking over royalty payment on crude oil produced from Rajasthan. At present, Oil and Natural Gas Corporation (ONGC) had to pay royalty on entire crude oil produced from the block even though it has just 30 per cent share of the production. Meanwhile, Cairn Energy of U.K. said the delay in government approval for its $8.48-billion deal to sell majority stake in its Indian unit to Vedanta Resources might hurt future foreign investments into India.

“We understand that the process will go its natural course, but it has to have a timeline,” Cairn Energy Chief Executive Officer Bill Gammell told reporters here.

The government is closely vetting the transaction as a non-oil company is buying controlling stake in Cairn India, the owner of the nation's largest onland oil discovery. “If it (the deal) is delayed, it won't help India's cause,” Mr. Gammell said.

He said speedy clearance of the Cairn-Vedanta deal would send the right signals to prospective foreign investors for its upcoming oil and gas block licensing round.

“It is important that the process does not take long if you think of the foreign investor and if you think of the NELP (New Exploration Licensing Policy) round... You would want to send the right kind of signal, you should not be taking too long,” he said.

“I think this deal will send a good signal for India as an investment destination. The world is looking at this transaction...I am hopeful the deal will close by the end of this year,” Mr. Gammell said.

The Centre is studying if the stake sale to a company that has never done oil exploration would compromise on the operations and if it will hurt interests of ONGC which is a partner in several blocks owned by Cairn India.

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