Vedanta's investment in Cairn shrinks by Rs 1,735 cr

Dip on account of a sharp decline in share price due to royalty issue.

It may take some more time for mining group Vedanta Resources to own a majority stake in Cairn India, but the company controlled by Anil Agarwal has seen its investment value shrink by Rs 1,735 crore.

Vedanta has acquired 28.5 per cent stake in Cairn India with an investment of Rs 18,935 crore.

The loss is on account of a sharp decline in the share price of Cairn India as the company faces an uncertain situation with regard to royalty on its mainstay, the Rajasthan oilfield. If Vedanta had paid the Rs 50 non-compete fee for the shares it acquired from Cairn Energy, the loss on account of investment would have swollen by another Rs 959 crore.

In August 2010, London Stock Exchange-listed Vedanta Resources, had announced plan to buy up to 60 per cent a stake in Cairn India. On the day of announcement (August 16, 2010), Cairn India’s share price touched a high of Rs 368 at the Bombay Stock Exchange.

However, with the government holding back its approval due to long-pending issues of royalty payment with government-owned Oil and Natural Gas Corporation (ONGC) and a tax arbitration case against the government, the stock came under pressure. It closed at Rs 314.50 today, slipping 11 per cent from the weekly-high of Rs 353.25 on July 8.

Experts, however, say the outlook for Cairn India is positive. “Once the board accepts the condition set by the government to clear the deal, the stock will move northward. The company will be able to scale up production and take advantage of the positive crude oil outlook,” said investment advisor S P Tulsian.

In April, Vedanta group company Sesa Goa bought 155 million shares (8.1 per cent stake) ‘through an open offer paying Rs 355 a share. The total investment in the open offer was Rs 5,502 crore. In the same month, it also acquired 200 million shares (10.4 per cent stake) owned by Petronas at Rs 331 per share after investing Rs 6,620 crore.

Earlier this week, parent company Vedanta Resources acquired 191.92 million shares representing 10 per cent stake from Cairn India’s current promoter Cairn Energy at a price of Rs 355 per share and invested Rs 6,813.2 crore.

Cairn Energy will sell another 30 per cent stake in Cairn India to Vedanta at a price of Rs 355 after it gets government clearance on acceptance of royalty conditions.