Proxy advisory firm InGovern Research Services has red flagged the proposed merger between Vedanta Ltd and Cairn India Ltd stating that it would be against the interest of Cairn India’s minority shareholders. It said the minority shareholders of Vedanta Ltd will gain at the detriment of the minority shareholders of Cairn India.
“Cairn India is a debt-free company. As a result of this merger, public shareholders of a debt-free Cairn will become shareholders of a heavily levered Vedanta Ltd. In other words, the merger will socialize the debt of Vedanta Ltd across the minority shareholders of both Vedanta and Cairn India. However, the promoter Vedanta Plc. will continue to hold majority control (50.1 per cent) over the combined entity,” InGovern said in its report.
It said London based Vedanta Plc., while continuing to maintain control of Vedanta Ltd will socialize the company’s Rs.74,000 crore debt as the number of minority shareholders will increase from 365,905 to 626,783.
Problems of Vedanta Aluminum would cascade onto the minority shareholders of Cairn India. “Vedanta Aluminum has been battling the activists for the refinery expansion in Orissa. Vedanta’s bauxite mining plans in Orissa have been facing trouble. The minority shareholders of Cairn India will inherit these problems,” InGovern said. The firm said “the merger has been proposed when shares of Cairn are trading at the lowest price over duration of 5 years. Although the loss in market capitalisation is attributable to fall in oil prices, the timing of the merger indicates that public shareholders of Cairn India will have to undertake a massive write-off on their investment due to this merger.”
Out of the acquisition debt of Rs.26,850 crore of Vedanta Ltd, Cairn India will pay up Rs.25,000 crore.
InGovern said in July 2014, Cairn India had extended loans of $1.25 billion (Rs 8,000 crore) to a foreign subsidiary of Vedanta and this loan will stand extinguished due to the merger. “Now, Cairn India’s cash balance of Rs.17,000 crore will be utilized to pay off part of the acquisition debt,” it said. Thus, Cairn India will ended up paying Rs. 25,000 crore of the Rs. 26,850 crore of the acquisition debt, it added.
Minority shareholders own 40.12 per cent stake in Cairn India while Vedanta owns the remaining 59.88 per cent.
