Lun 1 Aoû 2011 11:41
Vedanta given green light for $8.5bn Cairn dealShareholders
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Richard Wachman The Observer, Sunday 31 July 2011 Article history
The deal gives Vedanta at 58% stake in Cairn Energy, whose main asset is India's largest onshore oil project. Photograph: Bill Ross/Corbis
India's government has cleared mining company Vedanta Resources's $8.5bn acquisition of Cairn India, an offshoot of Edinburgh-based Cairn Energy, ending 10 months of uncertainty. The decision means Cairn Energy's shareholders will receive a multibillion-pound windfall.
Vedanta received a letter from oil minister S Jaipal Reddy giving the deal the green light last week. It gives Vedanta a 58% stake in Cairn Energy, whose main asset is a Rajasthan oil field, the subcontinent's largest onshore oil project, that pumps 128,000 barrels a day.
The transaction was delayed because of a row over royalty payments between Vedanta and state-owned ONGC, a 30% shareholder in the Rajasthan venture.Regulators also needed time to look at whether Vedanta had the financial strength, technical ability and expertise to take control.
In May, the office of India's prime minister, Manmohan Singh, ordered a review of Vedanta's record on safety, following an accident at one of its factories that led to the death of 40 people. Three Vedanta officials were arrested.
In London, where the Indian company is quoted on the stock exchange, analysts have worried about the group moving into a very different area from mining, and some have expressed concern about the amount of debt Vedanta is taking on to fund the Cairn purchase.
Moody's last week changed the outlook on Vedanta's debt to negative, meaning its senior unsecured bonds could receive another downgrade in 12 months. They are already deemed to be non-investment grade, or junk, status.
Vedanta is borrowing $7bn to meet the funding costs, which will take its gearing – the proportion of net debt to assets – from 10% to 30%. Following the deal, which has to be approved by Cairn Energy shareholders, Vedanta's gross debt will top $16bn.
A Vedanta spokesman said the group had a strong balance sheet and pointed out that the firm was generating significant amounts of cash thanks to the continuing boom in commodity prices. Vedanta's share price has risen from 290p to more than 1,700p since 2003 when it listed in London.
Vedanta has been dogged by controversy over its environmental record and annual shareholder meetings have seen protests from charities such as Amnesty International. The company has always vigorously denied wrongdoing.