épisode du 8/7/11

[frédéric]

MUMBAI: India'senergy sector is ripe for a wave of M&A deals following the government's approval of the Cairn-Vedanta deal and strong endorsement of the $7.1-billion BP-Reliance deal. The deal pipeline after the completion of two of the largest cross-border deals in India includes potential transactions between ONGC and companies such as ENI or BG for stakes in the state-run firm's offshore exploration blocks, and outbound M&A activity by Indian firms seeking foreign petroleum assets.

Months of government indecision over the Cairn-Vedanta deal had raised doubts about the willingness of foreign firms to invest in India but this didn't stop oil major BP from announcing its partnership with Reliance Industries. Analysts and bankers say that positive signals from the government, particularly on the BP-Reliance deal would catalyse dealmaking.

"Both public and private energy companies in India will continue to have a huge appetite for retail and distribution assets of foreign oil companies, especially those situated in Africa and the Far East. This is because global oil majors want to exit these assets by monetising them to generate cash flows to finance their renewed foray in exploration and alternative energy ," said Kalpana Jain, senior advisor, Deloitte India. For Indian energy companies hoping to expand their global footprint, these opportunities would be tempting, given their low cost of operations and their ability to take risks, Jain said.

"We expect that in the next two years, large inbound mergers or acquisitions aimed at joint exploration will be in excess of $1 billion while smaller deals spread across the hydrocarbon value-chain will be in the $300-500 million range:" she added. Indian companies too are ready to invest big monies in both upstream and downstream assets of foreign energy companies. Other industry experts agreed that deals would continue and straddle several oilfield-related sectors .

"The Indian oil and gas sector will continue to see a lot of heightened M&A activity now as consolidation is imminent given the sheer size of Indian energy companies and large scale of investments required in both exploration and refining," said CG Srividya, Partner-Specialist Advisory Services, Grant Thornton. "Given the large size of the latest transactions in the Indian oil and gas space, I see similar opportunities in engineering, drilling and leasing of oil rigs;" she added. Industry officials and bankers say that Indian companies are already on the lookout and some recent deals are a pointer to the trend.

"A case in point is Essar Energy's recent purchase of a 50% stake in Kenya Petroleum Refineries from Shell, Chevron Corp. and BP and its purchase of Shell's Stanlow refinery in the UK for $350 million:" added a source who advised Essar in the deals. Also, Reliance Gas Transportation Infrastructure (RGTIL), a company privately owned by Mukesh Ambani and other promoters of Reliance Industries , is offering a non-controlling stake to a suitable partner and has begun roadshows . On the question of whether these stringent regulatory conditions will vitiate the investment environment in the Indian oil and gas sector, Jain said: "The Cairn-Vedanta deal will be seen as the benchmark transaction for M&A deals in the sector, so there will be sentiment impact on ongoing deals now that transactions are picking up after two years and parties are coming to the table."

[frédéric]

NEW DELHI – More than 10 months after $9.6 billion-deal was first struck, the Indian government June 30 gave its approval to Cairn Energy for selling its Indian unit to Vedanta Resources, subject to the new owner agreeing to share royalty and pay oil cess on mainstay Rajasthan oilfields.

The Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manmohan Singh approved the sale with the preconditions that Cairn or its successor has to treat royalty payments on Rajasthan oilfields as recoverable from oil sales, Oil Minister S Jaipal Reddy told reporters here.

Also, Cairn India will have to withdraw the arbitration it has initiated disputing its liability to pay Rs 2,500 per ton oil cess on its 70 per cent share in the fields.

Besides, the approval will be subject to ONGC, which has a stake in all the three oil and gas producing properties and five out of seven exploration assets of Cairn India, waiving its pre-emption rights, which Reddy termed as the partner’s no-objection certificate (NOC).

He said the deal would also need the security clearance.

“The CCEA endorsed the recommendation of a Group of Ministers headed by Finance Minister Pranab Mukherjee, which was asked to go into the transaction,” he said.

Asked if the report of the Serious Fraud Investigation Office (SFIO), which had found Vedanta group firm Sesa Goa guilty of misconduct, would in anyway affect the government approval, Reddy said he has communicated the decision taken by the CCEA.

Refusing to say if the SFIO report was discussed, he said “The CCEA records decision not the thoughts.”

Last August, London-listed miner Vedanta proposed buying 51-60 per cent of oil and gas explorer Cairn India for up to $9.6 billion in cash, but the deal has been delayed due to a lack of government and regulatory approvals.

Approval has been delayed over royalty payments that ONGC makes on behalf of Cairn India in Rajasthan oilfields.

ONGC owns a 30 per cent stake in Cairn India’s Rajasthan oil field but pays the entire royalty on production under the government’s previous policy of giving discounts to attract investors.

ONGC had, much before the Cairn-Vedanta deal was announced, cited contractual provisions to demand that the royalty to be recovered as a cost from revenue.

The state-owned firm maintained that as a partner it has preemption or right of first refusal and the deal should not proceed without its concurrence, Reddy said.

Both Cairn and Vedanta disputed royalty being made cost recoverable as it would dent Cairn India profits. They also opposed the need for partner consent for the transaction.

The GoM held that ONGC’s views were correct and recommended to the Cabinet that the deal be approved if Cairn or its successor agreeing to adding royalty to the project cost and recovered from oil sales besides agreeing to pay its share of Rs 2,500 per ton oil cess.

Sensing the mood, Cairn lowered the price it is demanding from Vedanta to make up for reduced profitability on acceptance of the preconditions. It removed a non-compete provision and related non-compete fee of Rs 50 per share.

Vedanta’s total payment at the reduced price of Rs 355 per share for a 40 per cent stake in Cairn India will now be $6.02 billion instead of $6.84 billion previously. (PTI)
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