Cairn hit by delay in bid to sell £5.9bn India stake

Published on Thursday 7 April 2011 15:52

CAIRN Energy has suffered another setback in a bid to sell a £5.9 billion stake in its Indian operations, being forced to extend the deal deadline by five weeks.

Edinburgh-based Cairn and Vedanta Resources said completion was now pushed back from 15 April to 20 May, amid delays in negotiations with the Indian government.

The extension was announced as London-listed Indian mining firm Vedanta pressed ahead with an open offer to shareholders of Cairn India, a necessary part of the deal that will see the Edinburgh-based group sell a stake of between 40 to 51 per cent.

As agreed in August last year, Vedanta aims to buy 40 per cent of Cairn India while a further 20 per cent will be acquired on the open market by Vedanta subsidiary Sesa Goa. The 20-day offer will open on Monday and close on 30 April.

Vedanta's move to launch the offer was seen by some as provocation in the face of the ongoing delays imposed by the Indian government.

One Mumbai analyst said: "This is how you fight these battles. If you step away, you are accepting defeat. It's typical Vedanta style. They know there is a problem, but they are going ahead."

Sources close to Cairn said the board was "frustrated" by the Indian government's most recent delay, after a cabinet meeting on Wednesday referred the deal for review by yet another group of ministers, with no deadline set for a decision.

Although the cabinet committee on economic affairs had been expected to decide on whether or not the government would allow the transaction to go ahead, oil minister Jaipal Reddy said ministers had decided the deal was "complex" and that a final decision "shouldn't be taken in a hurry".

The government is withholding support over issues of royalty payments to Cairn India's partner, the state-owned ONGC, as well as an ongoing dispute between Cairn and the Ministry of Petroleum over other charges.

A spokesman for the company said the Cairn board would not go back to shareholders over the extension despite having repeatedly insisted since January that it expected to conclude the transaction before 15 April. This is despite serious doubts emerging that the deadline would be met after Reddy ignored urgent pleas from Cairn chief executive Sir Bill Gammell to back the deal in February.

Nathan Piper of RBC Capital Markets said significant support for the deal in January meant that shareholders would accept the extension.

"(15 April] was a deadline to try and push people against but the Indian government is not going to work to a businessman's deadline.

"India is not known for rapid decision making. But India needs the oil and the sooner the deal gets sorted out the focus can go back on the project and increasing production."

Both Cairn and Vedanta said they extended the long stop date in the sale agreement to 20 May "in order to accommodate completion of the open offer".

The launch of Vedanta's open offer was given the green light by the Securities and Exchange Board of India (SEBI) despite lacking official government backing. But SEBI's support required the two firms to drop put and call options and a pre-emption right that "did not comply with certain Indian securities regulations".