SHARES in Cairn Energy came under pressure after it revealed the Indian government is looking into a tax assessment dating back seven years.
In a brief statement, Cairn said it was “co-operating to provide the necessary documentation and information as requested” and would update the market in due course.
Cairn has become the latest foreign firm to be embroiled in India’s tax crackdown.
India has stepped up its efforts to enforce tax collection to remedy its budget deficit. Other companies recently involved in tax disputes in India include IBM, LG Electronics, Royal Dutch Shell and Vodafone.
Cairn said, while talks were ongoing, it had been instructed by the Indian income tax department to keep hold of its shares in Cairn India. Cairn Energy holds a 10.3 per cent stake in Cairn India, which is now majority owned by mining conglomerate Vedanta Resources.
In 2006, Cairn Energy spun off its Indian oil and gas operations into Cairn India and listed the unit a year later, in a flotation that at the time was the largest initial public offering in Indian corporate history. Analysts at SP Angel Oil & Gas said they believed it was unlikely that any claim from the Indian authorities would be “excessive”.
“We already know that there will be some payment to be made. The question is how much. Having met Cairn’s Indian team, we know how conservative they are… but that doesn’t mean that they won’t make a claim, just that it is unlikely to be excessive,” they said in a note.
Shares closed down 14.6p, or 5.6 per cent, at 247.5p.