Indian oil min says met Cairn India over Vedanta merger

By Nidhi Verma

NEW DELHI (Reuters) - The oil minister met executives from oil company Cairn India this week to discuss its potential merger with parent Vedanta Ltd, the operating unit of London-listed mining and energy group Vedanta Resources Plc.

Vedanta earlier this week signalled it was considering merging those two listed subsidiaries, as it tries to resolve a mismatch between its debt -- held at the top of the group -- and its cash, largely generated by subsidiaries including Cairn.

Asked on Friday if he had met the companies to discuss the deal, Oil Minister Dharmendra Pradhan said the government's main concern was that any deal should not affect Cairn's investments.

"They met me, but my ministry's concern is that capital expenditure should grow. My ministry's expectation is oil and gas production should increase," he told Reuters.

Debt-burdened Vedanta began simplifying its byzantine structure with a 2012 overhaul, but further moves to streamline the group and buy out minorities in cash-rich subsidiaries have long been awaited by the market.

A source familiar with the matter said the deal -- a test for new Indian rules protecting minority shareholders -- could be announced as early as Sunday.

The move is reported to have been triggered by a drop in Cairn's shares as oil prices weakened, making for a more favourable merger ratio for Vedanta.

"There's no question that they do it the moment they feel capable of doing it. It's always been the best thing for them to do," said one industry banker in London.

Analysts calculate that almost three-quarters of Vedanta's debt is held at either the group or the operating level. Cairn, by contrast, had roughly $2.6 billion in cash on its balance sheet as of March 31.

This matters particularly at a time when analysts estimate the group's debt repayments over the next five years will outpace its free cash flow. According to UBS analysts those repayments come to $15 billion, against an estimated free cash flow of $9.9 billion.

(Reporting by Nidhi Verma in NEW DELHI, Freya Berry and Silvia Antonioli in LONDON; Writing by Clara Ferreira Marques; Editing by Keith Weir)