CAIRN Energy appears to have blinked first in the stand-off with the Indian government regarding the planned multi-billion dollar sale of the bulk of its business in the country.
Edinburgh-based Cairn told investors that the deadline for completion of the deal has been shifted from next Friday, April 15, to May 20. The agreement to sell 40% to 51% of Cairn India to Vedanta Resources for up to $8.5 billion (£5.3bn), which should trigger massive payouts to Cairn Energy shareholders, was due to lapse on April 15.
Eight months after announcing the deal, Cairn Energy is still seeking approval for the sale from the Indian government amid a bitter dispute about royalty payments on production in the country.
In a statement to investors, Cairn Energy said the deadline had been extended to allow Vedanta to complete a related Open Offer to minority investors in Mumbai-listed Cairn India.
The company declined to comment further on the circumstances surrounding the extension. However, Cairn Energy appears to have performed a dramatic volte face to keep its hopes of finally winning official backing for the sale alive.
The company had said that it would not go back to shareholders to seek an extension of the completion deadline.
Last month Sir Bill Gammell, the Scotland rugby international who is chief executive of Cairn Energy, told The Herald: “The deadline is a real deadline. I find it very difficult to see how we could consider extending if we had not already got approval. Without approval we will not extend.”
In February, The Herald revealed that David Cameron had written to his opposite number in India, Manmohan Singh, about the deal. The Prime Minister highlighted the risks of alienating inward investors.
But Cairn has found that the deal has become hostage to political considerations in India.
The company’s state-owned Indian partner ONGC wants the terms of the contract covering the companies’ acreage in India amended in its favour. ONGC has to pay 100% of the royalties on production although it has 30% of the licence.
Ministers are reported to be minded to support its demand that the royalty terms be changed before the sale agreement is approved. Cairn Energy has argued that the sanctity of contracts should be respected.
On Wednesday India’s Cabinet Committee on Economic Affairs confounded hopes it would approve the deal and passed the matter to a ministerial panel. No timetable was set for the panel to complete its deliberations.
“I am getting to think that this deal will fall through,” Eric Mookherjee, Paris-based chairman of Shanti Asset Management, told Reuters.
Shares in Cairn Energy fell 2%, 10.5p to 445.9p.
In its statement, Cairn Energy said: “Cairn looks forward to the successful completion of the transaction after obtaining all the necessary Government of India approvals and consents.”
Analysts at Evolution Securities noted that Cairn Energy had sufficient funding in place to complete the exploration work it has scheduled off Greenland this year even without the Vedanta deal completing.
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