Agarwal meets Jaitley on merger & tax issues

Albanese to seek Indian minority investors' backing this week

Vedanta Resources Chairman Anil Agarwal on Monday met Finance Minister Arun Jaitley and Revenue Secretary Shaktikanta Das, a day after the announcement of the Vedanta Ltd-Cairn India merger.

"This is (part of) my regular visit to finance ministry. Whenever I come here, I apprise them of what is happening. We had told them about this merger in advance. We told them today also, updated them on the merger of Vedanta Ltd and Cairn India," Agarwal told reporters after the meeting.

The merger would require the approval of state-owned Life Insurance Corporation of India (LIC), too, which owns about 9 per cent stake in Cairn India.

Mindful of the fact that the merger would fall through if LIC and UK's Cairn Energy (9.82 per cent stake) were to vote against it, Vedanta on Monday reached out to the state insurance company for support. Vedanta Chief executive Tom Albanese said he would seek support from minority investors based in India this week and would meet investors in the UK next week.

On the meeting with ministry officials, Agarwal said: "We have also mentioned about the retrospective tax because when the demand came on us on the basis of withholding tax, the year they have mentioned, those years the law was not there to deduct the TDS (tax deducted at source). So matter is in court, it is subjudice. So we have left at that phase."

The Income Tax Department had in March this year imposed a tax demand of Rs 20,495 crore on Cairn India for failing to deduct withholding tax on alleged capital gains made by its erstwhile promoter, Cairn Energy. Cairn India, 60 per cent owned by Vedanta and being merged with the metal and mining firm, had challenged the notice in the Delhi High Court.

The tax demand was in addition to I-T Department slapping a Rs 10,247-crore tax demand on Cairn Energy for an alleged Rs 24,500-crore capital gains made in 2006 while transferring all its Indian assets to a new company, Cairn India, and getting it listed. Sources said the I-T Department is studying the implications of the merger and the tax angle, as Vedanta was a London-headquartered company.

Meanwhile, Moody's Investors Service said Vedanta Ltd would ultimately be held accountable for Cairn India's tax liability.

"Debt reduction following the merger will reduce rating pressure, though the merger increases the risk that Vedanta Ltd will ultimately be held accountable for Cairn India's $3.2-billion tax liability," it said.

Explaining the rationale of the merger, Agarwal said Vedanta was trying to create a natural resource company in India that would produce oil and gas, aluminium, copper, zinc, iron ore. "All over the world this trend is there that diversified metal companies are very well accepted. India has tremendous potential in this process."

Vedanta wants to use the Rs 16,867 crore lying with Cairn to pay off part of its Rs 77,752-crore debt, after the merger.

However, the merger needs the approval of at least half of the minority shareholders.