Vedanta buys stake in Cairn India

By Amy Kazmin and James Lamont in New Delhi

Published: April 19 2011 08:45 | Last updated: April 19 2011 20:50

Vedanta Resources, the UK-listed mining group, has bought a 10.4 per cent stake in Cairn India for $1.5bn (£920m) from Petronas, the Malaysian state-owned oil group, as it steps up pressure on New Delhi to allow it to take over the company.

The purchase of the stake on the open market comes as Vedanta is seeking to buy a $9.6bn controlling stake in Cairn India – which owns strategically important oilfields in Rajasthan – from its London-listed parent Cairn Energy.

Vedanta bought the Petronas shares at Rs331 a share on Tuesday, a discount to the Rs405 Vedanta offered Cairn Energy and 1.6 per cent down on Monday’s closing market price.

Shares in Cairn India rose almost 3 per cent on Tuesday to Rs345.4, valuing the company at $15bn.

The transaction was agreed at short notice. People close to the deal said Vedanta did not approach Petronas but received feelers from brokers, suggesting that the Malaysian oil group, which has been a purely financial investor since 2006, was interested in withdrawing from the venture.

On Monday, Vedanta received a call from Merrill Lynch, which had a mandate to sell, and built a stake at an attractive price.

The signal of Vedanta's intent comes as the company is in the midst of an open offer for minority shareholders to sell out of Cairn India at Rs355 a share. However, analysts said Cairn India's relatively small free float meant Vedanta was unlikely to take a large stake through that offer, which closes on April 30.

When the offer was made in August, Vedanta agreed that the number of shares it acquired from Cairn Energy would be reduced by the number of shares Vedanta bought from minority shareholders up to 11 per cent of the share capital.

However, on Tuesday, Vedanta said it aimed to own 51 per cent to 70.4 per cent of Cairn India.

“Vedanta looks forward to the successful completion of the Cairn India acquisition,” it said.

Regulatory approval of Vedanta’s takeover of Cairn India has been stalled for months, with New Delhi debating whether to give its consent before resolution of a dispute with the state-run Oil and Natural Gas Corp over royalties.

The purchase of the stake shows that Vedanta, controlled by self-made Indian billionaire Anil Agarwal, is undeterred by the regulatory drag, in spite of what some consider a move to exclude him from India’s oil and gas sector.

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