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Ven 13 Aoû 2010 13:05
Vedanta Closing In On Majority Stake In Cairn India - Source
First Published Friday, 13 August 2010 11:52 am - © 2010 Dow Jones
By Jessica Hodgson
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- Vedanta Resources PLC (VED.LN) is closing in on a majority stake in Cairn India Ltd. (532792), people familiar with the situation said Friday, in a move that would diversify its position in India's rapidly-growing resources market.
Vedanta, which is U.K.-listed but operates mostly in India, and Edinburgh-based oil and gas explorer Cairn Energy PLC (CNE.LN), confirmed Thursday that the companies are in talks about Vedanta buying part of Cairn Energy's 62% stake in Cairn India.
People familiar with the matter Friday said Vedanta is seeking a controlling stake in the investment under discussion. Their comments follow reports that Vedanta could pay between $8 billion and $8.5 billion for the interest.
The market capitalization of Cairn India is about $14.4 billion at current prices.
Vedanta typically likes to take a controlling stake in investments. In 2007 it acquired 51% of Indian iron ore producer Sesa Goa Ltd., for $981 million.
Vedanta acts largely as a holding company for subsidiaries like Sesa Goa. It also has an almost 60% stake in Sterlite Industries (India) Ltd., (500900) the direct owner of some zinc and aluminum asset, and a 79% holding in Konkola Copper Mines PLC (KONKOLA.ZM), Zambia's biggest copper mine.
The Cairn deal would outpace by a significant margin past Vedanta deals. The company's most recent purchase, in May, was a $1.34 billion deal, to buy zinc assets from Anglo American PLC (AA.LN).
Analysts, reacting to the news of Vedanta's interest in Cairn Energy Thursday, questioned the logic of such a deal. "A move into oil would be a very strange shift away from [Vedanta's] core business of developing mines and smelters," Credit Suisse said in a research note. "We therefore struggle to see any strategic fit or synergies."
The structure of the deal would be very dependent on Vedanta's ability to raise funds, Credit Suisse said. The company's debt is already between $4 billion and $4.5 billion and it plans an extensive round of capital expenditure of about $10 billion over the next three years, analysts said.
By mid-morning GMT, shares in Cairn Energy were up by just under 1% to 457 pence, after spiking sharply earlier in the week. Shares in Vedanta were lower by over 7%, or 154 pence, at 2025 pence.