Vedanta Wins Regulatory Approval to Buy Part of Cairn India in Open Offer

By Abhishek Shanker and Rakteem Katakey - Apr 5, 2011

Vedanta Resources Plc (VED)’s unit won regulatory approval to buy part of Cairn India Ltd. (CAIR) in an open offer as the mining company plans to spend $9.6 billion on assets including the nation’s biggest inland oil deposit.

Sesa Goa Ltd. (SESA)’s proposal to minority shareholders for 20 percent of Cairn India was cleared by the Securities and Exchange Board of India, and the offer will open subscription next week, Vedanta Chairman Anil Agarwal said in Mumbai today. N. Hariharan, spokesman for the regulator, declined to comment through a mobile-phone text message.

Vedanta, a mining company with no previous experience in producing oil or gas, said on Aug. 16 it aims to buy as much as 60 percent of Cairn India, including Sesa’s open offer. The transaction, which has yet to receive approval from the Cabinet, may be cleared shortly, Oil Secretary S. Sundareshan, the top bureaucrat in the oil ministry, said yesterday.

“There was uncertainty over the deal till today and now with this approval, the conclusion is one step closer,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi. “Cairn India can now start to benefit from high oil prices. Sesa Goa will actually end up buying the shares at a discount to current market prices.”

Cairn India declined as much as 1.1 percent to 363.50 rupees and traded at 366.55 rupees as of 1:19 p.m. in Mumbai. The benchmark Sensitive Index of the Bombay Stock Exchange fell 0.7 percent. Sesa Goa rose as much as 4 percent to 305.95 rupees and traded at 302.55 rupees.
Purchase Cost

Crude oil in New York trading increased 18 percent this year and climbed 44 percent since Vedanta and Cairn Energy Plc (CNE) announced the transaction on Aug. 16. Crude for May delivery fell as much as 0.5 percent to $107.92 a barrel in electronic trading on the New York Mercantile Exchange, and was at $108.05 at 8:56 a.m. London time.

While Vedanta Resources offered Cairn Energy 405 rupees a share, including a non-compete fee of 50 rupees a share, Cairn India’s minority shareholders are being offered a lower price. Sesa Goa has offered 355 rupees a share, according to a statement to the Bombay Stock Exchange on Aug. 18.

The final number of shares sold by Cairn Energy to Vedanta will depend on the result of the open offer.

Vedanta has raised $6 billion in debt to fund the acquisition, Agarwal said today. He expects the nation’s Cabinet to approve the transaction before April 15.

The money will be borrowed from Barclays Capital, Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Royal Bank of Scotland Group Plc and Standard Chartered Plc, Vedanta said in a Nov. 19 statement.

Sesa Goa plans to fund the purchase of Cairn India shares with its own cash, Managing Director P.K. Mukherjee said on Aug. 16. The company estimates it will have a cash balance of 120 billion rupees ($2.7 billion) by the end of March next year that will help to fund the purchase, he said.

State-run Oil & Natural Gas Corp., Cairn India’s partner in the Rajasthan oil block, is seeking to change a contract that makes it liable to pay royalty on all the crude oil produced from the area even though it owns 30 percent stake.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.
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