Cairn India, Vedanta boards okay merger, but hurdles remain

A Rs 20,000 cr tax demand may deny parent Vedanta resources access to Cairn's cash reserves

The boards of Cairn India and Vedanta Ltd on Sunday approved merger of the two companies, in a move that has the potential to unlock as much as Rs 17,000 crore in  case for Vedanta Resources, the parent company of both entities.  

Under the terms of the merger, Cairn India shareholders will get one equity share and one redeemable preference share of of Vedanta Ltd for each stock of Cairn that they hold.  

The merger, which gives the Vedanta group greater access to Cairn India’s cash reserves, however, could run into a hurdle due to a Rs 20,000 crore tax demand pending on Cairn India by the I-T department.

It may be recalld that both Cairn India and former holding company Cairn Energy Plc were issued tax notices of Rs 20,000 crore and Rs 10,000 crore respectively in March for failure to pay capital gains tax when some assets of Cairn Energy were transferred to Cairn India. The matter is currently in court.

Post merger, Vedanta Resources’ staek in Vedanta Ltd will drop to about 50 per cent from 62.9 per cent currently while Cairn India’s minority shareholders will own 20.2 per cent. Vedanta Ltd’s minority shareholders will own a 29.7 per cent stake in the combined entity.