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Dim 30 Jan 2011 23:19
Cairn delay to impact FDI'
Sanjay Dutta, TNN, Jan 31, 2011, 01.33am IST
NEW DELHI: Oil ministry's squeeze on the Cairn-Vedanta deal, coinciding with the RBI saying that the green ministry's activism has hit FDI flow, could raise doubts over India as an investor-friendly destination among emerging markets. Investment bankers said the ministry's efforts to change a sovereign contract for approving the largest oil sector M&A deal amounted to a "debt default".
Most of the bankers spoke on condition of anonymity since they have to "deal with either the government or the companies in the oil business". The common refrain, however, was that the government "cannot take away a corporate's right to seek grievance redressal through legal proceedings'' and a "globalizing economy should also allow easy exit to investors". Waqar Naqvi, CEO of Taurus Mutual, said the government could have made a mistake by signing a contract skewed against ONGC for Barmer oilfields but that was when it wanted investors to take financial risks in finding oil. "The government must find a mid-way solution where Cairn can exit with satisfaction" under the changed circumstance, he said. A contract could be changed "only if the conditions are mutually acceptable to all the parties", said Satish Ramanathan, Sundaram Mutual CIO.
Even then, it could not be done retrospectively. He did not blame ONGC, as a corporate, trying to extract its pound of flesh. But the onus was on the government to protect minority shareholders of both ONGC and Cairn, he said.
"The government can tell Cairn you are doing wrong to minority shareholders by giving a lower price... ONGC can also tell the government you have given us a raw deal. The government then should make good its promise to make up ONGC's royalty burden for the sake of the state firm's minority shareholders. The government's focus should be on minority shareholders," a banker said requesting anonymity for himself and his organisation.
Another banker described the ministry's conditions as an effort to renege on a sovereign guarantee. "You take a foolish decision, you pay for it. When you said ONGC will pay 100% royalty you treated it as an arm of the sovereign. The argument was money going into one pocket of the government or the other. Now when ONGC is different, you can't go back on your commitment. It's like trying to default on debt. What's the difference with Argentina then?"
Naqvi, however, did not agree with the doomsayers. "The squeeze will put off investors who want to come, create value and exit. But I don't think the long-term players will be affected. But yes, overall sentiment will definitely take a beating," he said.