Dim 20 Fév 2011 11:28
Episode du 20-02--Cairn feels the heat
By Erikka Askeland
Time is running out for Sir Bill Gammell as he wrestles Indian bureaucracy to sell a £5.4bn oil stake
TODAY is a day of reckoning for one of the biggest international deals in the corporate history of Scotland. Sir Bill Gammell, chief executive and founder of oil explorer Cairn Energy, is nervously awaiting word from the Indian government.
The faADVERTISEMENTte of the FTSE 100 firm's bid to sell a controlling stake in its Indian operation to mining billionaire Anil Agarwal's Vedanta Resources lies in the hands of Indian oil minister S Jaipal Reddy. Gammell is desperately hoping the Indian government will give the £5.4 billion deal the green light.
Today's deadline was prompted by a letter to Reddy last week from Gammell, suggesting it was "critical" to secure clearance of the deal as soon as this weekend, ahead of another deadline agreed with Cairn and Vedanta shareholders to dot the "i"s and cross the "t"s on the sale by 15 April.
As time begins to run out, even Prime Minister David Cameron has got involved in the lobbying, writing to India's Prime Minister Manmohan Singh to facilitate the early clearance of the deal. Business Secretary Vince Cable also discussed the timetable with India's minister of commerce, Anand Sharma, in London earlier this month.
But as Reddy prepared to leave on a tour of the north-east provinces with the Indian prime minister on Friday, he was still resisting Gammell's pressure.
"It's not easy for the government to work on a tight schedule for the deal," he said. "Cabinet will look at it in a time frame of three weeks."
In the seven months since the deal was announced, former Scotland rugby international Gammell will have been relying on the positive game psychology he learned scoring tries during his younger days. But the opposition has been a formidable Indian bureaucracy bent on extracting what it believes to be its fair share before Cairn sells its majority stake.
Reddy's decision last week to kick the judgment upstairs to his colleagues in the Indian cabinet gave rise to fears this would lead to yet more delays.
Although Edinburgh-based Cairn remains confident of a victory, the deal to cash in on over 15 years of hard labour in the dusty Rajasthan oil fields has caused upset and acrimony at the highest levels.
At the source of the delay is the Oil and Natural Gas Corporation (ONGC), India's largest state-owned hydrocarbon firm, and a prickly dispute over the issue of royalty payments. In a contract signed with Cairn in the Nineties to attract oil heavyweights to the Rajasthan state, ONGC agreed to pay 100 per cent of the royalties on its 30 per cent stake in the fields. But when the fields started producing hundreds of thousands of barrels of oil, this became a massive liability for ONGC.
The state-owned firm now wants to share out the royalties, which would cost Cairn's Indian operation - Cairn India - an estimated $3bn (£1.8bn) over the life of the field. This would materially change the value of the deal proposed by Agarwal.
LaADVERTISEMENTst Friday, in an extraordinary outburst published in a national newspaper, the former chairman of ONGC, RS Sharma - who had retired only three days earlier - wrote that if anyone was to blame for the delay, it was Gammell. "I am quite concerned that the time taken in processing the Cairn Energy-Vedanta Resources transaction is negatively impacting the country's investment sentiment and its image as a destination for foreign capital," he wrote. "The blame primarily rests with Cairn Energy… and no one else."
Sharma's main beef was that Cairn announced the deal with Vedanta in August before it had approached ONGC. He said this "adversely affected the relationship" with ONGC and the Indian government.
But Cairn has maintained that the transfer of ownership of the stake in Cairn India, a separately listed company, does not and should not change the contracts it has with either its Indian partners or the government.
Some Indian lawyers agree with Cairn.
Hemant Sahai, managing partner of Hemant Sahai Associates, said: "This appears to be a case of the (Indian] government trying to benefit ONGC and using this opportunity to try and get Vedanta to give its consent."
Agarwal, an Indian national whose conglomerate Vedanta is listed on the London Stock Exchange, has also made enemies in high places in New Delhi. A number of his projects, including a bauxite mine in Orissa, were rejected by environmental ministers.
Sources at ONGC also claim that Cairn India, under its chief executive Rahul Dhir, had agreed to share the royalty costs with the Indian government only a month before the deal was struck with Vedanta.
But the board of Cairn India has since denied there were any written agreements, merely "verbal discussions", and has stated categorically in its recent market update that "any condition tied to the approval of the company cannot be accepted".
Along with the royalty issue, Indian authorities have also demanded that Cairn Energy waive its position in an ongoing lawsuit which has seen the Indian government withhold millions in revenues produced on some of the Rajasthan Ravva fields.
The delay in the deal with Vedanta has caused immense frustration for Gammell who has long learned to swallow his temper in order to play the long game.
Analysts point out that what Cairn Energy has achieved in terms of shareholder value in India is immense in its scale. Gammell bought the 50 per cent stake in the Rajasthan oil fields from Shell, hundreds of miles from any port or oil refinery, for about £5m. Now, with a pipeline complete and producing 165,000 barrels of oil per day, that stake may now may be sold for over £5bn a mere eight years later.
Gammell remains adamant that any deal will meet the 15 April deadline - despite an estimated 50-day window Vedanta needs to make an open offer to the rest of Cairn India's shareholders. Following yet another meeting with the oil ministry on Friday, GADVERTISEMENTammell said: "I am confident things will move forward to the satisfaction of all parties."
But if he's stymied by the Indian bureaucratic process in meeting the deadline, Nathan Piper an analyst at RBC Capital Markets, believes he would only have to ask shareholders to extend the deadline. If the deal goes through, shareholders are set to share in a windfall worth billions.
Piper said: "Provided government approval comes by mid March, latest, Vedanta still has time to make the open offer to Cairn India shareholders and still hit the 15 April deadline. But frankly, the only significance of the deadline is that it is what has been agreed. Obviously if the deal needs another week or two, I can't imagine Cairn or Vedanta would have any great trouble extending it.
"Considering both have 90 per cent-plus shareholder approval of the deal I can't imagine an extra fortnight would change shareholder perceptions," he added.
The sale of the stake in Cairn's Indian operation would free up the estimated £1bn the oil explorer requires to complete the exploration of Greenland. Gammell is well known in his preference for being a buccaneering explorer rather than a staid, stay-at-home oil producer. And like the unexplored and unloved Rajasthan fields 20 years ago, Greenland is a long shot - albeit one with vast potential.
But even if the Indian deal falters - which remains a risk - some shareholders at least would not be overly disappointed.
Peter de Vink, a financier and long-term shareholder in Cairn said: "I am not in the slightest bit troubled by all these shenanigans. So what? Have you looked at the earnings Cairn is making without selling? If the Indians are going to put the kaibosh on it and the other party wants to run for the hills, Bill will be a winner whatever way it goes.The simple thing is what Cairn has achieved is beyond belief."
http://business.scotsman.com/business/C ... iclepage=1
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( Pierre Mac Orlan )
( Pierre Mac Orlan )
