Vedanta Resources Plc (VED), struggling to take over Cairn India Ltd. (CAIR) because of approval delays, bought 10.4 percent in the explorer from Petroliam Nasional Bhd. while offering to buy stake from minority investors at a higher price.
Unit Sesa Goa Ltd. (SESA) bought 200 million Cairn India shares, amounting to a 10.4 percent stake, from Petronas International Corp Ltd. at 331 rupees ($7.44) apiece, Vedanta said in a release today. Petroliam Nasional, Malaysia’s state oil and gas producer also known as Petronas, said it sold its entire 14.9 percent holding in Cairn India for $2.1 billion, without identifying the buyers.
Vedanta’s purchase advances its $9.6 billion bid for the operator of India’s largest onshore oil field, first announced in August. The company was forced to delay its open offer to minority Cairn India investors and had to extend its deadline to complete the transaction to May 20 from April 15 after India’s cabinet asked a panel of ministers to study the proposal.
“Today’s deal done through the stock exchange means Petronas will probably not have to pay any taxes on the sale as it has held Cairn India shares for more than a year,” said Jagdish Meghnani, an analyst at Mumbai-based Alchemy Share & Stock Brokers. “It makes more sense to sell outside the open offer, even at a lower price.”
Sesa Goa started its open offer on April 11, at 355 rupees apiece, as part of the plan by its London-listed parent mining company to take over Cairn India. The offer ends on April 30.
Vedanta’s acquisition of shares from Petronas is in addition to the open offer and may result in the miner holding 51 percent to 70.4 percent in Cairn India, according to the release. Vedanta said Aug. 16 it is seeking to buy 51 percent to 60 percent of Cairn India for as much as $9.6 billion.
Vedanta climbed as much as 2.3 percent to 2,285 pence in London and traded at 2,278 pence at 1:55 p.m. local time. Cairn India gained 2.4 percent to 344.10 rupees at the close in Mumbai, the most since April 4. The stock has climbed 3.4 percent this year compared with a 6.8 percent decline in the benchmark Sensitive Index. Sesa Goa rose 0.7 percent.
Cairn India had 283.4 million shares change hands in bulk deals today, according to the website of the Bombay Stock Exchange. Apart from Sesa Goa’s acquisition of 200 million shares, Merrill Lynch Capital Markets Espana SA bought 39.5 million shares at 331.47 rupees each and Broad Peak Mauritius Pvt. purchased 12 million shares at 331 rupees apiece.
Vedanta, controlled by billionaire Chairman Anil Agarwal, has no previous experience in producing oil and gas and has proposed a two-part deal involving the open offer for as much as a 20 percent stake in Cairn India and the purchase of shares from parent Cairn Energy Plc. (CNE)
Cairn Energy will sell 40 percent to 51 percent of its holding to Vedanta, depending on the result of the open offer by Sesa Goa.
While Sesa Goa’s offer to buy Cairn India shares is at 355 rupees apiece, Vedanta proposes to pay Cairn Energy 405 rupees a share, including a non-compete fee of 50 rupees.
“Besides the tax, a market transaction between Vedanta and Petronas also makes sense because Vedanta is now assured of an 11 percent stake in Cairn India,” said Jagannadham Thunuguntla, the New Delhi-based chief strategist at SMC Global Securities Ltd. “If done through an open offer, they may have to return the shares if the government doesn’t approve the bigger deal. The open offer was happening because of that deal.”
Crude’s 41 percent gain since August has made Cairn India more attractive for Vedanta. Cairn India produces about 125,000 barrels a day of oil from the Mangala field in the Rajasthan block, the nation’s biggest deposit on land.
State-owned Oil & Natural Gas Corp., Cairn India’s 30 percent partner in Rajasthan, wants to reduce its liability to pay royalties on all of the block’s output. The ministerial panel will study the transaction and the dispute over royalty payments, Oil Minister S. Jaipal Reddy said April 7.
Bank of America Corp. (BAC) helped sell the shares held by Petronas, according to two people familiar with the transaction, declining to be identified before an official announcement. Bank of America spokeswoman Mona Kwatra declined to comment. Azman Ibrahim, a spokesman for Petronas, said he wasn’t immediately able to comment.
Bank of America is ranked sixth in managing domestic share sales by Indian companies this year, with SBI Capital Markets Ltd. ranked first, followed by HSBC Bank Plc, according to data compiled by Bloomberg. Indian companies have raised 83 billion rupees in local share sales in 2011, a fifth of the amount in the same period last year, according to the data.
Petronas acquired 10 percent in Cairn India at 176.48 rupees a share before the explorer’s December 2006 initial public offering. The Malaysian company bought an additional stake at 224.30 rupees each in a preferential allotment in March 2008 and paid about $240 million for a further 2.3 percent stake in October 2009, taking its total to 14.9 percent.
Shamsul Azhar Abbas ordered a review of Petronas’ global investment portfolio after taking over as chief executive officer in February 2010. This is so the group can invest more funds to replenish the country’s oil and gas reserves, Shamsul said in an e-mailed interview on Nov. 8.
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