Vedanta used Cairn loan to repay inter-company loan

Cairn had extended a $1.25 billion loan from its cash pile to Sesa Sterlite, which was later renamed Vedanta Ltd

Cairn India's $1.25 billion loan to its promoter group, which had spooked investors, was used by Vedanta Ltd to repay another inter-company loan taken for acquisition of the oil company.

Cairn had on July 23, 2014 disclosed in an investor presentation that it had extended a $1.25 billion loan from its cash pile to Sesa Sterlite, which was later renamed Vedanta Ltd.

The move had at that time raised questions about related party transaction without proper disclosure and minority shareholder approval and led to Cairn stocks tanking by most in five years.

London-listed Vedanta Resources, the parent firm of Vedanta Ltd, in a presentation made to investors on September 9 stated that the $1.25 billion loan was used to repay $800 million of principal and $450 million for interest on another inter-company loan.

The $1.25 billion two-year inter-company was extended by Cairn India Ltd to "a wholly owned overseas subsidiary of Vedanta Ltd in Q1 FY2015. On arm's length terms and conditions with an annual interest rate of LIBOR+300 basis points," it said.

Vedanta Group had in 2011 acquired 58.5% controlling interest in Cairn India Ltd from its UK parent, Cairn Energy plc. Twenty per cent of this was acquired by Vedanta Ltd and 38.5% by Twinstar Mauritius Holdings Ltd (TMHL) - a special purpose vehicle (SPV) wholly owned by Vedanta Resources plc (VED).

The acquisition by TMHL was funded by $4.43 billion of debt made up of bank debt sured by Cairn India shares and parent company guarantee/loan from VED.

In August 2013, Vedanta Ltd acquired TMHL from VED.

Vedanta Ltd had in its April-June quarter earnings presentation stated that: "As on June 30, 2015, debt at Cairn acquisition SPV comprises Rs 8,926 crore of bank debt and Rs 16,564 crore of inter-company debt from Vedanta Resources Plc. There was accrued interest of Rs 405 crore on the inter-company debt as on 30 June 2015."

The $1.25 billion inter-company loan is repayable to Cairn India in July 2016. But it will get cancelled if the proposed all-share merger of Cairn India with Vedanta Ltd goes through.

Vedanta Resources had a debt of $7.7 billion debt as on March 31, 2015 while Vedanta Ltd had another $4.57 billion debt. Zero-debt Cairn India, on the other hand, has $2.85 billion cash.