Vedanta gets Sebi nod for Cairn open offer

CCEA okay for deal expected today, but on what conditions still unclear.

The Securities and Exchange Board of India (Sebi) has given its nod to UK-based Vedanta Resources’ Rs 13,160-crore open offer for Cairn India, said Vedanta Chairman Anil Agarwal..

The Cabinet Committee on Economic Affairs (CCEA) is also likely to approve the Cairn-Vedanta deal tomorrow, eight months after it was signed. The deadline for completion of the deal is April 15.

"Sebi has given a clearance and the offer will open next week. We will post the mails in a day or two,” said Agarwal.

According to the Sebi website, the final observations were issued on March 28 to JM Financial, the merchant banker to the offer. According to the rules of the market regulator, any company acquiring 15 per cent or more in a listed company is required to make an open offer for at least another 20 per cent stake. Vedanta has offered to pay Rs 355 per share to the public for the 20 per cent and has agreed to shell out Rs 405 per share to Cairn Energy promoters.

According to the earlier schedule, the open offer was supposed to open on October 11 and close on October 30, 2010. However, regulatory issues had delayed the process. Vedanta's shareholders gave their nod for the deal in the annual general meeting on December 13.

Vedanta had signed the deal with Cairn Energy Plc, last August to buy 51-60 per cent stake for $8.5-9.6 billion. According to the deal, Vedanta will acquire 31-40 per cent and Vedanta's subsidiary, Sesa Goa Ltd, will acquire a 20 per cent stake in Cairn India Ltd.

Sesa Goa’s managing director, P K Mukherjee, said they were yet to receive formal communication from Sebi. Sesa Goa is expected to raise $1 billion for its share of the stake. "We are evaluating options to raise the money," he said.

A bank consortium, comprising Barclays Capital, Citi, Credit Suisse, Goldman Sachs, J P Morgan, Morgan Stanley, Royal Bank of Scotland and Standard Chartered, have already agreed to fund $6 billion to Vedanta for the deal. The financing arrangements comprise four tranches, with maturities between 18 months and three years.

The ministry of petroleum and natural gas had referred the issue to CCEA, since there was a dispute regarding payment of royalty on the Barmer block. Though state-owned Oil and Natural Gas Corp (ONGC) is a 30 per cent partner in the block, it pays the entire royalty.

In its note to CCEA, the ministry has proposed that either the government consent be given for the deal, along with approval for making royalty cost recoverable, plus other conditions, or the government decides on the royalty and establishes its right on cess through the arbitration route.

The ministry has suggested conditioning the approval to the deal on Cairn getting a no-objection from ONGC, which holds stake in eight of the 10 properties of Cairn India, including its three producing properties in Barmer, Cambay and Ravva.

The Sebi approval had been held up after the ministry had told the market regulator that Cairn Energy needed government approval before closing the deal under the production sharing agreements signed with it.