Income-tax dept sells Cairn Energy shares in Vedanta for $216 million

London Stock Exchange-listed Cairn Energy on Monday said the income-tax department has sold part of its holding in Anil Agarwal-led Vedanta Ltd for $216 million.
 

Cairn Energy’s holding in Vedanta had been seized by the government following a tax claim on the company.

The Edinburgh-based company has also written off its remaining holding in Vedanta. The income-tax authorities have claimed a principal tax of Rs 102 billion ($1.6 billion), plus applicable interest and penalties. Interest is currently being charged on the principal at a rate of 12 per cent per annum from February 2016.

The company said it has “been notified by the Indian income tax department that it has sold part of Cairn’s shareholding” in Vedanta. “Following this sale, Cairn’s retained holding in Vedanta is now around three per cent. It is possible that the department may make further sales,” the company said in the statement.

After disposing part of this shareholding, Cairn Energy will write down the carrying value of its investment in Vedanta, resulting in an impairment charge at the half year equal to the value of total shares notified as having been sold by the income-tax department.

Cairn Energy held equity in Vedanta after the company was merged with Cairn India in April 2017. Under the terms of the merger, Cairn Energy received ordinary shares and preference shares in Vedanta in exchange for the residual shareholding of around 10 per cent in Cairn India. As a result, Cairn Energy had a shareholding of around 5 per cent in Vedanta, plus an interest in preference shares. This investment was valued at around $1.1 billion as on December 31, 2017.

In an update on its ongoing arbitration with the Indian government under the UK-India Bilateral Investment Treaty, Cairn Energy said all of the written submissions by it and the Indian government had been made, and the final arbitration hearings were scheduled for two weeks commencing on August 20, 2018 in The Hague. “These hearings will involve testimony by experts and fact witnesses and will address Cairn Energy’s claims under the treaty, India’s defences and issues of jurisdiction,” according to the company.

Cairn Energy said it was seeking full restitution for losses totalling around $1.3 billion resulting from the government’s “expropriation of its investment in India in 2014, and India’s unfair and inequitable treatment of those investment, due to the imposition of retrospective tax measures”.

Indian tax authorities had seized dividends due to Cairn Energy from its shareholding in Vedanta totalling $155 million, and offset a tax rebate of $234 million due to Cairn as a result of overpayment of capital gains tax on a separate matter.

“The reparation sought by Cairn Energy in the arbitration is the monetary value required to restore it to the position it would have enjoyed in 2014 but for the Government of India’s actions in breach of the Treaty. Accordingly, the status of Cairn’s assets seized in India does not affect the merits of Cairn’s claims, the amount of relief sought, or the enforceability of the arbitral award,” according to the company.

The income-tax department had claimed capital gains tax on certain intra-group share transfers undertaken in 2006 prior to the initial public offering of Cairn India in 2007. The notification referred to the retrospective Indian tax legislation enacted in 2012.