Vedanta buy puts it closer to control of Cairn India

Published on Monday 18 April 2011 22:50

Vedanta Resources yesterday confirmed it had bought a 10.4 per cent stake in Cairn India for $1.5 billion (£920 million) in a move seen as stepping up the pressure over delays to its plans to gain control of the company.

The mining giant bought the 200 million shares from Malaysia's national oil corporation Petronas which sold the remainder of its stake - around 4 per cent - to other foreign investors.

One analyst said the move was a sign of Vedanta "putting their money where their mouth is, signalling intent and perhaps subtly turning up the pressure on the Indian government".

Vedanta's deal to buy a 5.9bn controlling stake in Cairn India from Edinburgh-based Cairn Energy has hit a series of delays with the Indian government recently referring it to a ministerial panel after it failed to reach a decision. The delays are due to issues over royalty payments by Cairn India's partner, the state-run Oil and Natural Gas Corp.

Cairn and Vedanta have recently extended their deadline for completion of the deal, which would be the biggest-ever acquisition in the Indian oil sector and is widely seen as a litmus test for foreign investment into the country, to 20 May.

Vedanta said it expects to own between 51 and 70.4 per cent of Cairn India once the deal and an ongoing open offer to the company's minority shareholders were complete.

Jagannadham Thunuguntla, head of research at brokerage SMC Global Securities, said the purchase of the Petronas stake was a strategic move by Vedanta.

"It makes the open offer inconsequential. Vedanta will now be able to get a comfortable controlling stake in Cairn India even if the open offer response is very poor. But all this is subjective to the government clearing the deal, and that is an unknown factor." Under the planned deal Cairn Energy will keep a 22 per cent stake in Cairn India.