Vedanta Completes Cairn Merger

India’s metal and mineral major, Vedanta is awaiting the final nod from central bank, Reserve Bank of India (RBI) to complete the proposed merger with its energy subsidiary, Cairn India Ltd., to create the fourth largest resource company in the world. Vedanta, the Indian subsidiary of London Stock Exchange (LSE) listed Vedanta Plc has secured all approvals from its shareholders and that of Cairn India Ltd. and India’s National Company Law Tribunal to effect the merger. However, the final regulatory clearance from RBI was necessary as the merger would involve issue of fresh non-redeemable preference shares to non-resident minority shareholders of Cairn.

According to a Vedanta statement, the merger would be effective as soon as the approval for issue of non-redeemable preference shares was received from the Indian central bank. “It is just a matter of a very short time that last of the formalities will be completed and the merger process become effective,” a company source said. The revised target date for completion of the merger had been set for April 2017.

The merged entity of Vedanta and Cairn India would create the world’s fourth largest resource major after BHP Billiton, Rio Tinto and Glencore. “The strategic rationale for merging Vedanta Ltd and Cairn India remains highly compelling. Diversified resource companies have delivered superior returns for shareholders historically. The transaction consolidates our portfolio of attractive Tier I assets and simplifies the group structure, better positioning the group to deliver superior value to all shareholders in the long term,” Tom Albanese CEO, Vedanta India had said in a statement explaining the objective of the merger.

The merger first proposed in 2015 had hit several roadblocks primarily from minority shareholders of Cairn India who had objected to equity share swap offered by Vedanta. In 2016, the board of Vedanta approved a revised and sweetened the swap ratio under which minority shareholders of Cairn India would receive one equity share and four non-redeemable preference shares of Rs 10 each face value of Vedanta for every one equity share of Cairn India. Once the merger was in place, Vedanta Plc’s equity holding in Vedanta Ltd. was expected to come down to 50.1% from 62.9% at present.

Though no official announcement has been made, sources indicated that the merged entity was looking to invest $10 billion over five years in the merged company to expand its energy and mining portfolio to emerge as a stronger global diversified resource company.

Cairn India currently holds seven oil and gas blocks of which sic were located in India and one in South Africa. Among the blocks in India, its primary asset was the Mangala fields in desert Indian province of Rajasthan, which was discovered in 2004 and one of the largest discoveries in a decade. Mangala together with adjacent blocks were reported to hold hydrocarbon reserves estimated at 2.2 billion barrel equivalent of oil. Currently, Cairn India produces 200,000 barrels of oil and gas equivalent per day and additional investments over the next few years was expected to ramp this 250,000 oil and gas equivalent per day.

Vedanta’s business portfolio included Sesa iron ore mines in western Indian province of Goa and one of the largest exporter of the raw material from the country, zinc smelting operations under subsidiary Hindustan Zinc Ltd., a 2.3 million metric ton per year aluminum smelting capacity and 9,000 MW of power generation capacity.

As featured in Womp 2017 Vol 05 -