Cairn India, the oil company 69 per cent owned by FTSE 100 listed Cairn Energy, is raising $625m from a private placement of shares to two investors, one of them Petronas, Malaysia's national oil company.
The money will be used to invest in Cairn India, including the development of its large Rajasthan oil fields, for which cost estimates have been rising.
The deal will dilute Cairn Energy's stake to a little less than 65 per cent. Petronas will go from 10 per cent to 12.7 per cent, and the Orient Global Tamarind Fund, a Singapore-based private investment fund with other holdings in India, will have 2.6 per cent.
Petronas first took a stake in Cairn India in 2006, before the company was floated, and said at the time it was making a "long-term supportive investment".
It has other long-term holdings in companies and assets round the world, and is not generally seen as a likely bidder for the businesses in which it invests.
Cairn India is issuing 113m new shares, a stake of slightly less than 6 per cent, at 224.30 rupees a share; about 40 per cent above the price it floated at in January 2007.
Its shares - and those of Cairn Energy, which are up 81 per cent in the past 12 months - have soared in spite of persistent uncertainty over the financial treatment of a planned pipeline to carry the oil from Cairn's Rajasthan fields to market.
The Indian government has stalled for more than a year on granting approval for the pipeline's cost to be included in the production sharing contract for the fields. Hopes that an agreement could be reached last month proved misplaced.
However, Cairn said Monday it remained confident of delivering first oil by the end of next year.
Cairn Energy will give an update on progress when it reports its full-year results on March 31. It will also talk about its other prospects outside India, including assets in Nepal, Bangladesh, Tunisia and Greenland.
Cairn Energy's shares had an active day, rising at one point but then falling to close 179p or 6 per cent down at pound 27.66.
