The Oil Ministry may have let Vedanta Resources off the hook by its unusual intervention with SEBI, as in deferring the London-listed group’s open offer for Cairn India, it lost an opportunity to negotiate payment of royalty and oil cess.
Billionaire Anil Agrawal-run Vedanta is buying Edinburgh-based Cairn Energy Plc’s 40-51 per cent stake in Cairn India for up to USD 8.48 billion and is making an open offer to buy an additional 20 per cent from minority shareholders.
The ministry felt controlling stake of a firm running strategic assets like Rajasthan oilfields cannot pass without government nod and wrote to market regulator SEBI that the transaction did not have its approval yet.
“This intervention probably was the primary reason why SEBI has not yet given its approval for the open offer that was to open on October 11,” a senior analyst said.
“Had the ministry allowed the open offer to go through, Vedanta would have spent Rs 13,472 crore in acquiring 37.94 crore shares. Having spent that much amount they would have agreed to any condition to get government nod,” he said.
The ministry could have exploited such a scenario to get Cairn India to agree to bear its share of royalty and cess on crude oil produced from the Rajasthan fields, which is at the centre of the Vedanta deal.
Though Cairn India is 70 per cent owner of up to 12 million tonnes of crude oil that will be produced from Rajasthan block, it is contractually not obliged to pay any royalty and also claims exemption from Rs 2,500 per tonne cess.
State-owned Oil and Natural Gas Corp (ONGC), which has the remaining 30 per cent, pays the levies on its and on behalf of Cairn.
“Vedanta is sitting in a very comfortable position today. It has not spent even a single penny and will get with USD 100 million from Cairn Energy as breakfee if the deal doesn’t go through,” the analyst said.
Because of the royalty and cess liability, the Rajasthan fields are a losing proportion to ONGC. Vedanta could have been pressurised into agreeing to pay for its share in exchange for government nod, he said.
Besides, Vedanta’s vulnerable position in case of it completing the open offer could have been used to get ONGC more say in operations.
Sources said the sale was conditional upon shareholders of Cairn Energy Plc and Vedanta Resources passing a resolution to approve the transaction on or before October 30 and Vedanta Group completing an Indian open offer to minority shareholders of Cairn India. It is conditional upon required government consents.
The Sale Agreement will lapse if these conditions are not satisfied or waived on or before April 15, 2011.
The USD 9.6 billion deal (including open offer) will give Vedanta access to the nation’s biggest onshore oilfield in Rajasthan that currently produces 125,000 barrels of crude oil per day (6.25 million tonnes a year).
The entire Rajasthan block, which is estimated to hold 6.5 billion barrels of oil reserves, can produce up to 240,000 bpd -- equivalent to 12 million tonnes a year of peak output -- from ONGC’s prime Mumbai High fields in the western offshore.
Scotland-incorporated Cairn UK Holdings Ltd, a wholly- owned subsidiary of Cairn Energy, has conditionally agreed to sell to Twin Star, a wholly-owned subsidiary of Vedanta, a maximum of 51 per cent of share capital of Cairn India. The share sale will be at Rs 405, split between a price payable for each Sale Share of Rs 355 plus a non-compete fee of Rs 50.
Vedanta Group is yet to get market regulator SEBI’s approval for an open offer to acquire up to 20 per cent stake from minority shareholders at a price of Rs 355 a share, Rs 50 less than what it is paying Cairn Energy for a majority stake.
The open offer, as per the schedule announced by Vedanta in August, was to open on October 11 but in absence of SEBI nod has been deferred.
Vedanta is paying Cairn Energy Rs 405 per share for a 40 to 51 per cent stake in Cairn India. This includes a Rs 50 non-compete fee to keep the Edinburgh-based firm out of India, Bhutan and Sri Lanka for three years.
The minority shareholders have been offered a price sans the non-compete fee.
