Vedanta lines up $6 bn to fund Cairn India buy

Average cost of funding is Libor plus 3.5 per cent, Vedanta Resources, the London-listed FTSE 100 diversified metals and mining major, today said it had entered into financing agreement for $6 billion with a consortium of leading banks to fund its proposed acquisition of 51-60 per cent of Cairn India for an aggregate consideration of approximately $8.5 billion to $9.6 billion.

Vedanta Resources proposes to acquire 31-40 per cent and its subsidiary Sesa Goa will acquire 20 per cent in Cairn India.

The bank consortium comprises Barclays Capital, Citi, Credit Suisse, Goldman Sachs, JPMorgan, Morgan Stanley, Royal Bank of Scotland and Standard Chartered. The financing arrangements comprise four tranches, with maturities of between 18 months and three years. General syndication of part of the financing will commence shortly, the company said in a statement.

Even though the company refused to divulge details of the cost of this financing, market sources said the average cost of the deal was in the region of London Interbank Offered Rate (Libor) plus 3.5 per cent. Amongst the consortium of eight banks, Standard Chartered will have the maximum exposure, estimated to be in the region of $1.5 billion.

Anil Agarwal, chairman of Vedanta Resources, said, “The financing announced today provides the group with funding flexibility. We are delighted to announce $6 billion of commitments from leading international banks, a testament to the strength of the Vedanta story.”

Today's announcement also puts to rest media speculation about Vedanta’s inability to raise money to fund the deal, due to the delay in getting the Indian government’s approval for the deal.

However, the closure of deal still hinges of the Ministry of Petroleum and Natural Gas approving the deal and also the Securities and Exchange Board of India’s (Sebi’s) final approval. Sources in the company said the deal could be sealed by this December, which is what officials in the government were also saying earlier this year.

The oil ministry’s interest is due to state-owned ONGC being a partner in the Rajasthan block that Cairn controls in India. ONGC is a 30 per cent partner in the oil blocks allocated to Cairn in Rajasthan.

Vedanta announced its intention to buy stake in Cairn India on August 16. The company subsequently made a formal application to Sebi for its nod as Cairn India is listed on Indian stock exchanges. The company is yet to receive a formal nod from Sebi. In the first week of October, Cairn shareholders approved the transaction, removing one obstacle for Vedanta to go ahead with its plans to entire a new line of business — oil.