Vedanta, Cairn India edge lower after proxy advisory firm InGovern raises concerns on proposed merger

Vedanta and Cairn India fell 1.49% to 2.56% at 14:48 IST on BSE after proxy advisory and corporate governance firm InGovern raised concerns on merger of Cairn India into Vedanta.

Vedanta (down 1.49% at Rs 178.55) and Cairn India (down 2.56% at Rs 182.80) edged lower.

Meanwhile, the S&P BSE Sensex was down 17.97 points or 0.07% at 26,568.58.

Proxy advisory and corporate governance firm InGovern in its report noted that as a result of merger of Cairn India into Vedanta, public shareholders of debt-free Cairn India will become shareholders of a heavily levered Vedanta. In other words, the merger will socialize the debt of Vedanta across the minority shareholders of both Vedanta and Cairn India, InGovern said. The advisory firm further said that Vedanta Aluminum has been battling the activists for the refinery expansion in Orissa. Amnesty International has consistently highlighted human rights abuses associated with the operations of the Lanjigarh refinery, which commenced production in 2007, InGovern said. Vedanta's bauxite mining plans in Orissa have been facing trouble, the advisory firm added. The minority shareholders of Cairn India will inherit these problems associated with Vedanta Aluminum, InGovern said in its report.

Cairn India has a tax liability of approximately Rs 20000 crore towards the Government of India, a matter which is sub-judice, InGovern noted. Any adversarial outcome for the company will result in a significant cash outflow for Vedanta impacting its business and operations, the advisory firm added. The management claims that a probability has been assigned to the outcome of this tax dispute with the Revenue office of the Indian government, InGovern said.

InGovern further said that the merger has been proposed when shares of Cairn India are trading at the lowest price over duration of 5 years. In fact the share price of Cairn India has more than halved over a period of 1 year, InGovern noted. Although the loss in market capitalization of Cairn India is attributable to fall in oil prices, the timing of the merger indicates public shareholders of Cairn India will have to undertake a massive write-off on their investment in Cairn India due to this merger, InGovern said.

Vedanta and Cairn India on 14 June 2015, announced that Cairn India will be merged with Vedanta. As per the merger scheme, minority shareholders of Cairn India will receive one equity share of Vedanta for each share held in the company. The minority shareholders of Cairn India will additionally get one 7.5% redeemable preference share (RPS) of Vedanta of a face value of Rs 10 each for each share held in the company. No shares will be issued to Vedanta or any of its subsidiaries for their shareholding in Cairn India.

On consolidated basis, Cairn India reported net loss of Rs 240.82 crore in Q4 March 2015 compared with net profit of Rs 3035.44 crore in Q4 March 2014. Net sales declined 47% to Rs 2677.20 crore in Q4 March 2015 over Q4 March 2014.

Cairn India is one of the largest independent oil & gas exploration and production companies in India.

On consolidated basis, Vedanta reported net loss of Rs 19228.12 crore in Q4 March 2015 compared with net profit of Rs 1621.55 crore in Q4 March 2014. Net sales declined 14.7% to Rs 17732.25 crore in Q4 March 2015 over Q4 March 2014.

Vedanta is a diversified natural resources company, whose business primarily involves exploring and processing minerals and oil & gas.

Powered by Capital Market - Live News