Cairn India hits 11-month low

The stock tanked over 10% in two days after the company said that it will lend about $1.25 billion to its parent for two years.

Cairn India has dipped 5% to Rs 307, extending its Thursday’s nearly 7% fall, after the Vedanta group-controlled company said that it will lend about $1.25 billion to its parent for two years at a yield of Libor + 3% and ruled out the option of returning surplus cash to shareholders in the form of higher dividends.

Of the loan, Cairn has already disbursed $800 million so far and plans to disburse the rest in the next few weeks. The company had cash and cash equivalents of $4 billion on its book as of June this year.

Corporate governance advocates say Cairn did not make disclosures to small investors about such a large related-party transaction; this itself was a violation of Sebi norms and warranted an investigation, the Business Standard report suggests.

“The management ruled out the option of returning surplus cash to shareholders in the form of higher dividends, as the company might require the given amount for capex on development of new discoveries from 2016-17 onwards, by which time the loan will be repaid to the company," write Kotak Securities analysts Tarun Lokhotia, Sanjiv Prasad and Vinay Kumar in a note, says report.

The stock opened at Rs 321 and touched a low of Rs 305.50, its lowest level since August 2013 on NSE. A combined 9.42 million shares changed hands on the counter so far on NSE and BSE.