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  • Vedanta to seek shareholder nod next month, open offer in Jan

    Published on November 25, 2010

    London-listed Vedanta Resources may next month seek shareholders’ nod for buying majority stake in Cairn India for up to USD 9.6 billion.

    The India-focussed group, which last week secured USD 6 billion debt for the acquisition, is likely to post in next few days a circular convening a shareholders meet in third week of December, sources privy to the development said.

    Vedanta, which is buying 40-51 percent stake from UK’s Cairn Energy Plc, also hopes to get market regulator SEBI’s nod for acquiring an additional 20 percent stake from minority shareholders of Cairn India by December end and may launch an open offer in early part of January 2011.

    Sources said that Cairn, in the next few days, would make a formal application to the government for approval of transfer control of its three properties, including the mainstay Barmer oilfields in Rajasthan, that were previously not included in the letters sent for state’s approval.

    Oil Secretary S Sundareshan had on 19th November said that the government would consider approval to the Cairn- -Vedanta deal only after UK-based Cairn Energy made a formal application for transfer of control of all of its 10 properties in the country.

    The government decision would take 2-3 months from the day the applications are received, he had said.

    Sources said that if the government nod were to come by February-end or even in March, it would be well within the 15th April 2011 deadline set by Cairn and Vedanta for closure of the transaction.

    Cairn Energy, which had last month secured shareholders’ nod for selling most of its 62.38 percent stake in the Indian unit, is, however, unlikely to concede pre-emption rights to partner Oil and Natural Gas Corp (ONGC).

    The Edinburgh-based firm’s current application that seeks the government’s nod for sale of 40- 51 percent stake in CairnIndia has left out the three oil and gas producing properties: Rajasthan block, the Cambay basin gas field and the eastern offshore Ravva oil and gas fields.

    Earlier this month, the Oil Ministry wrote to Cairn Energy, citing law ministry’s opinion that the British firm was contractually bound to seek government approval in all of its assets, as sale of majority stake in the Indian unit amounted to transfer of control in the properties, sources said.

    Though the company looks set to concede the ground on requirement of prior government consent, it is unlikely to yield pre-emption rights to state-owned ONGC, which partners its Indian unit in most of its properties including the Rajasthan block.

    The pre-emption is a natural extension of the requirement of government consent and the same has been upheld by Law Ministry and the Solicitor General of India, the nation’s second highest law officer, in their separate opinions on the Cairn-Vedanta deal.

    In its 16th August announcement of the USD 9.6 billion deal, Cairn Energy did not say that the sale of its majority stake in Cairn India to London-listed Vedanta was conditional on government approvals.

    However, on being shown the relevant provisions of the contracts for exploration it has with the government, Cairn Energy — about a month later — made an application for approval that left out all of its three producing properties, including its mainstay 6.5 billion barrels Rajasthan block.

    “This position was not acceptable to the oil ministry who sought law ministry views on the issue. The Law Ministry opined that Cairn was contractually bound to apply for approvals in all the properties,” the source said.

    Cairn has so far maintained that it is not contractually bound to seek approval for sale of shareholding in the Indian unit in the Rajasthan block, the Cambay basin gas field and the eastern offshore Ravva oil and gas fields.

    The Law Ministry, in an opinion sent late last month, had held that the share sale is nothing but transfer of control (in all of the 10 properties of Cairn India), necessitating government’s nod in all of them and triggering ONGC’s pre-emption rights.

    Cairn India is primarily an aggregation of interests that it holds directly or indirectly through its subsidiaries in 11 blocks (inIndia and Sri Lanka).

    A transfer of controlling stake in Cairn India amounts to a transfer of the respective participating interests, therefore, necessitating government approval, according to the legal opinion.

    And transfer/sale/assignment of interest to third party will trigger pre-emption rights of state-owned ONGC, which partners Cairn India in most of its properties.

    Cairn says the Vedanta deal is only a corporate transaction, involving share transfer, which does not trigger issues like examination of new owners’ technical capability and ONGC’s pre-emption rights.

    Both Oil Ministry and ONGC, which hold stake in most of CairnIndia’s properties, have contested this view and have got legal opinion backing their claims.

    They feel the deal is effective transfer of control and so ONGC’s pre-emption rights are triggered.

    Vedanta was to get shareholder nod for the deal by 30thOctober but missed the deadline due to regulatory issues.

    Its mandatory open offer for additional 20 percent stake in Cairn India, too, missed the October deadline as market regulator SEBI is yet to give its approval for the same.

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