Vedanta in talks to buy a stake in Cairn India

The pair said they were in discussions over the sale of shares in Cairn India, the fourth-largest oil and gas firm in the country, which was valued at $13.6 billion (8.7bn) at the close of trading on Wednesday. Cairn Energy's 62 per cent stake would be valued at $8.5bn.

Analysts claimed the announcement could potentially spark interest from other bidders. "It's a very good business and the main asset in Rajasthan is of a scale that would be of interest to even the bigger companies out there," said Richard Slape of Canaccord Genuity.

In a statement issued to the stock exchange yesterday, Cairn confirmed discussions were taking place, but cautioned that there was "no certainty" that the talks would be successful.

Cairn Energy shares were up 1.8 per cent yesterday, while shares in Vedanta were down 7.5 per cent as analysts questioned its ability to afford a large acquisition.

"The big question now is how big this stake is going to be and how are they going to structure the deal," said Liam Fitzpatrick, an analyst at Credit Suisse, adding that he expected Vedanta to acquire only a minority interest.

Numis analyst Sanjeev Bahl said he thought Cairn Energy would be likely sell a small stake of about 5 per cent, a similar size to the 6 per cent it sold in Cairn India in March 2008 and the 2.3 per cent stake it offloaded in October 2009. Any deal with Cairn India would be Vedanta's first move into oil and gas.

A huge oil find in Rajasthan helped propel Cairn Energy, run by chief executive Sir Bill Gammell - also chairman of Cairn India - from a small company to a major oil producer and led it to spin off the Indian operations.

Cairn floated the Indian arm in 2007 in the largest initial public offering in India.