Moving ahead with its plan to buy a majority stake in Cairn India, Vedanta Resources on Tuesday bought a 10.4 per cent stake in the Indian company for Rs. 6,620 crore (Rs. 66.20 billion), or Rs. 331 a share, from Malaysia's Petronas.The price is less than the Rs. 355 that Sesa Goa, a Vedanta group company, is paying in the ongoing open offer to buy more Cairn India shares.
The government is yet to approve Cairn's deal to sell stake in Cairn India to Vedanta.
Despite this, Sesa Goa not only went ahead with the Petronas deal but also clarified that the open offer would continue and was "not subject to government consent".
Speaking to Business Standard, P K Mukherjee, managing director, Sesa Goa, said the offer required the approval of only the Securities and Exchange Board of India.
The offer, which started on April 11, ends on April 30.
By going for block deals on the stock exchange, Petronas has escaped the capital gains tax. Jagannadham Thunuguntla, the equity head of SMC Global Research, says the open offer has now become inconsequential.
"The retail investor will prefer to sell in the open market, as the offer price is only a tad above the market price. The sale in the open offer will also attract a higher tax rate," he said.
Petronas sold its 14.94 per cent share (283.4 million shares), held by Petronas International Corporation, for about $2.1 billion.
"This closes a successful association as a shareholder with Cairn India since 2006,"
Petronas said.
It more than doubled its investment, as most of the stake was bought at Rs. 160 a share.
The remaining 4.54 per cent equity (83.4 million shares) has been bought by domestic and foreign institutions. The institutional investors are believed to have paid Rs. 335 per share.
At the Bombay Stock Exchange, Cairn India shares rose 2.3 per cent to Rs. 344.25, while the market closed flat.
Vedanta has signed a deal with Cairn to buy a 40 per cent stake in Cairn India and make an open offer for another 20 per cent.
If the open offer is not fully subscribed, Cairn will sell additional shares, but with a cap of 51 per cent, to make up for the shortfall.
Vedanta has agreed to pay Rs. 405 per share to Cairn Energy, including a non-compete fee of Rs. 50. The minority shareholders are not being paid this fee.
The government says the deal requires its approval as it involves scarce natural resources.
Also, Cairn India has a dispute over royalty with ONGC, its partner in its most-prolific Barmer block. ONGC, with just 30 per cent ownership, pays 100 per cent royalty.
The Union cabinet was supposed to take a decision earlier this month, but referred the issue to a group of ministers headed by Finance Minister Pranab Mukherjee.
Petroleum Minister Jaipal Reddy said the finance minister had not indicated when he would be available for the GoM.
He said he could not say if the GoM would meet before the ongoing state elections.
"We will try and expedite the decision. The government cannot possibly work on the private sector's time-frame," he said.
