Episode du 4/07

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phili675

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Inscription: Mar 8 Sep 2009 08:03

Message Lun 4 Juil 2011 08:30

Episode du 4/07

4 JUL, 2011, 02.00AM IST, SHUCHI SRIVASTAVA,ET NOW
Cairn-Vedanta deal: Minority shareholders may challenge Govt

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Read more on »Oil And Natural Gas Corporation Ltd.|Cairn India Ltd.


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MUMBAI: The controversial Cairn-Vedanta deal, approved by the government after 11 months of twists and turns, may see more drama ahead as minority shareholders may legally challenge stringent government conditions that directly eat into the company's profit and erode the value of the deal, a source close to the company's board told ET.

Cairn India's board is also expected to scrutinise the government conditions and assess their implications, the source said. While Cairn India's shares gained nearly 5% on Friday, responding to the deal's approval, some shareholders were not ready to accept conditions such as Cairn withdrawing arbitration proceedings over cess payment of 2,626.50 per tonne, which Cairn pays under protest. The other contentious condition is that Cairn must accept, without legal recourse, ONGC's view on the royalty payment mechanism, which in effect reduces Cairn's profit from the field.

"This is the first instance in India's corporate history when the government of India is denying judicial remedy to a private company and its shareholders, but this is not binding on individual shareholders who could seek legal recourse, stating that their equity value has been eroded," said the source.

Morgan Stanley has raised a similar note of caution and said in a report: "Although the deal is approved conditionally, Cairn India's board is yet to decide on whether to accept these conditions. While Cairn Energy and Vedanta control 80% of voting rights, we believe that Board of directors and minority shareholders may not accept these conditions," it said.

"We will be discussing the entire transaction in our upcoming board meeting and will take account of all contentious views," the source close to the board said.

Cairn India itself is not comfortable with the conditions being imposed by the government and all directors on its board may not endorse the deal without raising concerns, a source close to the top management of the company said. However, the views of the major shareholders, Cairn and Vedanta, which have been pushing hard for the deal, are likely to eventually prevail.

Minority shareholders would also have other points to contest the action of the government of India. "Also, if you look at corporate laws in the UK, given that the government of India and Vedanta are partners in a lot of other companies locally, this would be termed as a related-party transaction, especially, as being the owner of ONGC, the government is acting to protect its own business interest and thus cannot be seen as an objective regulator," added the source.

Late on Thursday, the Cabinet Committee of Economic Affairs (CCEA) finally cleared the 11-month old deal along with tough conditions involving the finances of India's largest onshore oilfield. Cairn India derives 90% of its revenue from these fields and holds a 70% stake.

ONGC, which pays the entire royalty on crude output from these fields, had been objecting to the Cairn-Vedanta deal, saying that its approval is a must for Cairn to sell a controlling stake of its Indian arm to Vedanta. The government supported state-run ONGC's demand that royalty paid by ONGC should be made 'cost-recoverable', which means royalty costs would first be deducted (recovered) from the sale proceeds of oil before profits are split between partners and the government. In effect, this reduces the profit available for sharing. Cairn has argued that ONGC, which pays the royalty on the entire output, should be allowed to recover this cost from the revenue of the field.

In a move that seemed to accommodate this particular condition, Vedanta recently agreed to buy another 10% in Cairn India as part of a restructuring that will result in a $600 million reduction in the price tag. The two sides agreed to drop a controversial non-compete fee under which Cairn was due to earn the equivalent of 405 per share, while the minority shareholders of Cairn India were only offered 355 a share under a mandatory open offer that closed in April this year.
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frédéric

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Inscription: Lun 31 Jan 2011 09:51

Message Lun 4 Juil 2011 19:07

Re: Episode du 4/07

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The conditional approval will hit Cairn India’s asset valuations and undermine those of Sesa Goa.

The Cairn-Vedanta deal getting conditional approval from the Cabinet Committee of Economic Affairs (CCEA) should pave the way for its completion, though the conditions will impact Cairn India’s valuations.


While the clause on royalty payment being made cost-recoverable is likely to impact valuations by Rs 50-55 per share, the withdrawal of arbitration proceedings on cess payments will mean a hit to the tune Rs 15-20 per share, taking the total impact to Rs 65-75 per share. Analysts have revised their targets in the region of Rs 270-300 per share. Given the fall in asset values, Elara Securities’ analyst Alok Deshpande believes the stock will trend downwards in the medium term, with approval by the Cairn India board acting as a further dampener. The stock delivered just nine per cent over the past year, due to lack of clarity on the royalty issue and the government delay on the go-ahead.

The government go-ahead, with conditions, will have a big impact not only on Cairn India, Cairn Energy Plc and Vedanta but also Sesa Goa, Sterlite and Oil and Natural Gas Corporation (ONGC). The key change for Cairn India is on the royalty payment and the cess issues. Analysts believe if royalties were made cost-recoverable and Cairn India were to foot the 70 per cent share of royalty payment, Cairn India’s net asset value would fall 14 per cent to Rs 337 per share, with crude oil prices at $100 per barrel. What’s more, Cairn will be reimbursing ONGC for past royalty payments made by the latter for Cairn’s share. On the cess issue, Cairn India is likely to continue to foot Rs 2,500 (plus surcharge) per tonne of crude oil.

The conditional approval is a positive for Vedanta, analysts say. To complete the acquisition, the revised agreement between Cairn and Vedanta had already led to removal of the non-compete fee. This meant the price offered by Vedanta came down to Rs 355 a share, equal to what was being offered to the minority shareholders of Cairn India. By a Nirmal Bang report, Cairn India is now being valued at $14.93 billion (Rs 67,000 crore), a reduction of 9.35 per cent over the previous value of $16.47 bn (Rs 74,000 crore).

“The deal offers a ray of hope for the Vedanta Group in India and its group company, Sterlite, an underperformer due to the legal/regulatory issues,” says Amit Agarwal, analyst, Religare Securities. Sterlite’s share may thus see some rally. Its other group company, Sesa Goa, that took a stake in Cairn, will be negatively impacted due to the downward revision in Cairn’s valuations. Analysts suggest Sesa Goa, down 15 per cent in the past six months on account of duty on iron ore exports and volume growth concerns, can correct four-five per cent from current levels.

The biggest beneficiary of the conditional approval to Cairn-Vedanta is ONGC. The company till now has been paying the entire royalty burden, with the 2010-11 share being Rs 1,300 crore on revenue of Rs 3,877 crore. The conditional approval and the revised agreement would see ONGC’s royalty burden being reduced by around $700 million, show Religare research estimates. It would add Rs 2.50 a share to ONGC’s 2011-12 earnings per share of Rs 30.5. Further, it will stand to gain from recovering the past royalty payments. This is a big boost for its coming follow-on public offer.

“The government’s oil subsidy sharing policy may determine the future course of ONGC performance,” states Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities.

http://www.business-standard.com/india/ ... gc/441525/

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