Cairn India to merge into Vedanta

In its biggest consolidation, billionaire Anil Agarwal's group on Sunday announced merger of its cash-rich oil company Cairn India with parent Vedanta to cut debt at the struggling resources arm.

Cairn India shareholders will receive one share of Vedanta Ltd for every share they held. Also, they will get one redeemable preference share in Vedanta Ltd with a face value of Rs 10.

"This is an implied premium of 7.3% to the Friday closing price of Cairn India," Vedanta Ltd CEO Tom Albanese told PTI in an interview here.

The long-anticipated move would take Agarwal a step closer to achieving his ambition of building an India-integrated resources group in the mould of Rio Tinto or BHP Billiton.

But the move needs approval of 50% of minority shareholders of Cairn India, including its former parent Cairn Energy, which owns 9.8% of total shares, and state-run insurance company LIC, which owns another 9 per cent.

"This is a good deal for Cairn shareholders," Albanese said.

The transaction is targetted to be closed by March 31, 2016 and would need approval of both the stock exchanges -- BSE and NSE -- market regulator SEBI, High Court as well as Ministry of Petroleum and Natural Gas for transfer of Cairn India's interest in oil and gas blocks like Barmer basin oil block in Rajasthan and Ravva oil and gas field in KG Basin to Vedanta Ltd.

Albanese said the Cairn brand will be retained even after the merger and there will be no job cuts. "Cairn is a very strong brand locally and we intend to retain that." Through the merger, Agarwal plans to use Rs 16,867 crore cash lying with Cairn to pay off part of Vedanta's debt.

Cairn has no debt, and cash needs have dwindled after investment programme was slashed by 60% to US $500 million for current year.

Vedanta Ltd, India's top producer of aluminum and copper, is nation's second-most indebted metals company and its annual interest costs is nearly three times that of the London parent. It has a debt of Rs 77,752 crore, excluding a US $1.25 billion inter-company loan from Cairn India.

Cairn India is almost 60% owned by Vedanta. 

Cairn's cash could have been funnelled to its parent through dividends, but that would incur taxes.

Last year, it extended a low interest loan of US $1.25 billion to Vedanta Ltd, a move that spooked investors about corporate governance.

The merger brings curtains down on a process that began when Vedanta bought a controlling stake in the Indian arm of Edinburgh-based Cairn Energy for US $8.67 billion in 2011.

Agarwal had previously hinted that he aims to bring the businesses together.

In May, the group took a US $6.6 billion impairment charge, largely on account of dip in crude oil prices.

Cairn India produces oil and gas from three of its seven blocks.

Vedanta, the operating unit of London-listed mining and energy group Vedanta Resources Plc, is also considering merging another listed cash-rich subsidiary, Hindustan Zinc Ltd.

Vedanta Ltd, previously konwn as Sesa Sterlite Ltd, owns 64.9% stake in HZL, which has US $4.8 billion of cash.

Government holds 29.5% in HZL.

Out of Vedanta Resources' gross debts of US $16.7 billion as on March 31, US $5.7 billion comes up for repayment before March, 2017.

Debt-burdened Vedanta began simplifying its byzantine structure with a 2012 overhaul.

In 2013, Agarwal had consolidated iron ore mining business by merging Sesa Goa Ltd with Sterlite Industries (India) Ltd, which ran copper and aluminum businesses.

Vedanta Resources also transferred its 38.8% holding in oil producer Cairn India, including a debt of US $5.9 billion, to the new company.