Sign in Subscribe
Petroleum industry

Vedanta's $9.6 Billion Acquisition Hinges on CCEA's Decision

Strategic Insights

— 2 min read

India's oil ministry expressed concerns over Vedanta Resources Plc's proposed acquisition of Cairn India Ltd, a deal worth $9.6 billion, citing regulatory hurdles and a royalty payment dispute between state-owned Oil and Natural Gas Corp. Ltd (ONGC) and Cairn India. The cabinet committee on economic affairs (CCEA) will decide on the deal, and any delay in approval could jeopardize the transaction deadline of 15 April.

Key Takeaways:

  • The acquisition of Cairn India Ltd by Vedanta Resources Plc for $9.6 billion is pending approval from the cabinet committee on economic affairs (CCEA).
  • State-owned Oil and Natural Gas Corp. Ltd (ONGC) has made a royalty payment dispute with Cairn India a precondition for the deal's approval, citing a potential $2 billion in unpaid royalties over the life cycle of the field.
  • ONGC has paid Rs. 812 crore as royalty for the first nine months of the fiscal year, with the company contesting the payment of cess dues, which it is paying under protest.
  • The oil ministry has supported ONGC's claim that royalty should be made cost recoverable, albeit emphasizing that the ministry cannot bail out either the seller or the buyer.
  • The acquisition faces regulatory hurdles, including procedural clearance from the oil ministry and approval from the Securities and Exchange Board of India (SEBI) for an open offer to buy shares from other Cairn India shareholders.
  • The deal's outcome is uncertain, with the transaction deadline of 15 April looming, and any delay in CCEA's decision increasing the risk of the sale agreement lapsing.
  • The state-run refineries' losses from selling fuels at government-mandated prices are estimated to reach Rs. 1,00,000 crore at the end of the current fiscal year and are currently at Rs. 80,000 crore.

Statistics:

  • $9.6 billion: The proposed acquisition price of Cairn India Ltd by Vedanta Resources Plc.
  • Rs. 43,680 crore: The acquisition price of Cairn India Ltd in Indian rupees.
  • $2 billion: The estimated unpaid royalties over the life cycle of the field, as per ONGC's claims.
  • Rs. 812 crore: The amount ONGC has paid as royalty for the first nine months of the fiscal year.
  • Rs. 80,000 crore: The losses made by state-run refineries from selling fuels at government-mandated prices at the current fiscal year.
  • Rs. 1,00,000 crore: The estimated losses made by state-run refineries from selling fuels at government-mandated prices at the end of the current fiscal year.

Sources:

  • S. Jaipal Reddy, Petroleum Minister
  • Cairn Energy Plc
  • Vedanta Resources Plc
  • Oil and Natural Gas Corp. Ltd (ONGC)
  • Indian Oil Corp. Ltd (IOC)
  • Mint (2011)
  • McClatchy-Tribune Information Services

Read more