Cairn Energy Plc and Vedanta Resources Plc extended the deadline for a $9.6 billion deal to acquire the U.K. explorer’s Indian unit after the South Asian nation’s cabinet referred the proposal to a panel of ministers.
The two London-listed companies pushed the deadline to May 20 from April 15 to give more time for Vedanta to buy a majority stake in Cairn India Ltd., which operates the nation’s biggest inland oilfield. The panel headed by Finance Minister Pranab Mukherjee will study the transaction and a dispute over royalty payments, Oil Minister S. Jaipal Reddy told reporters late yesterday.
Vedanta, a copper and aluminum company with no experience in producing oil or natural gas, has waited almost eight months to buy as much as 60 percent of Cairn India Ltd. The cabinet decision was announced after Sesa Goa Ltd., a unit of Vedanta, said it would start a 20-day open offer for Cairn India shares on April 11.
“It suggests we’re not going to get a decision in the short term,” said Richard Rose, an analyst at Oriel Securities Ltd. in London. “We still expect it to be approved. It’s just another delay, I wouldn’t read anything positive or negative into it.”
Cairn India fell 1.9 percent to 343.95 rupees in Mumbai trading to the lowest level since March 16. Sesa Goa dropped 3.1 percent to 315.80 rupees, while the benchmark Sensitive Index fell 0.1 percent. Cairn Energy declined 2 percent to 447.3 pence at 11:30 a.m. in London trading and Vedanta lost 3.2 percent to 2,418 pence.
“Cairn and Vedanta have extended the long stop date in the sale agreement, by which all conditions must be completed or waived (where permitted), to May 20, 2011, in order to accommodate the completion of the open offer,” Cairn Energy said in a statement today to the London Stock Exchange.
India’s stock market regulator, the Securities and Exchange Board of India, asked for put and call options by Cairn Energy and Vedanta to be removed from the sale agreement because they don’t comply with some rules, according to the statement. Vedanta’s first right to buy Cairn India shares from Cairn Energy in the future has also been scrapped.
Cairn Energy and Vedanta earlier agreed to ensure the mining company retains a majority stake in Cairn India by exercising put and call options for six-month periods starting July 2012 and July 2013, according to an Aug. 16 statement.
Vedanta’s acquisition proposal was referred to the group of ministers to consider the view of state-run Oil & Natural Gas Corp., Cairn India’s partner in the biggest oilfield in Rajasthan state, that the royalty payments should be added to the project cost, which the partners are allowed to recover from sales. ONGC is liable to pay royalties on all the crude oil from the area even though it owns a 30 percent stake.
“My own ministry, petroleum and natural gas, took a categorical stand that royalty should be cost recoverable,” Reddy said. “I presented two options. One was to give conditional clearance, the other was to give clearance while leaving the legal recourse open to both the parties. A decision would be taken between these two options.”
Vedanta declined to comment on the decision to refer the acquisition plan to the panel of ministers.
ONGC may make 140 billion rupees ($3.2 billion) in royalty payments on Cairn India’s behalf over the life of the field, according to the New Delhi-based company.
“We have not said no,” Minister Reddy said yesterday. “But we cannot be expected to give clearance in a tight time frame. We are expected to take care of the interests of the country and ONGC.”
Vedanta’s proposed two-part deal involves the open offer for as much as a 20 percent stake and the purchase of shares from Cairn Energy.
Sesa is offering Cairn India’s minority investors 355 rupees a share and has an option to increase the price by April 19, according to a newspaper advertisement yesterday. The offer is scheduled to close on April 30.
Vedanta has offered Cairn Energy, which currently owns 62.1 percent of Cairn India, 405 rupees a share, including a non-compete fee of 50 rupees a share, according to a statement to the Bombay Stock Exchange on Aug. 18.
The final number of shares to be sold by Cairn Energy to Vedanta will depend on the result of the open offer.