Cairn India to merge with Vedanta Ltd; to pare debt

The merger will help cut Vedanta’s Rs 37,636 crore gross debt by using Rs 16,870 crore cash lying with Cairn as well as over Rs 14,000 crore of cash the firm generates every year.

Shareholders of Cairn India, which has seen stock prices plunge from Rs 385 in June last year to Rs 172.60 at close of trading on BSE on Tuesday, will be issued shares of Vedanta Ltd - formerly Sesa Sterlite, sources with direct knowledge of the development said. Boards of the two firms are likely to consider the merger proposal soon and the transaction is targeted for completion by March next year, they said.

Agarwal’s London-listed Vedanta Resources in a regulatory filing said: “Should a transaction with Cairn India Ltd proceed, it could potentially be considered a reverse takeover.” Vedanta had in 2011 acquired majority control of Cairn India for USD 8.67 billion. It held 59.9 per cent in the oil explorer through its various units as on March 31. As a prelude to the merger, Vedanta had this month bought some of the shares held by Agrawal’s Twin Star Mauritius Holdings to raise its stake in Cairn India to 23.71 per cent from 18.73 per cent. Twin Star now holds 34.43 <g data-gr-id="52">per cent</g> in Cairn India. To local bourses, Vedanta said, “Company’s stated strategy is to simplify and consolidate its corporate structure. Management reviews options to deliver this strategy on an on-going basis.”

British oil explorer Cairn Energy, which had sold <g data-gr-id="51">majority</g> of its stake in Cairn India to Vedanta, still holds 9.8 <g data-gr-id="48">per cent</g> in the oil firm. It has however been restrained by the Income Tax department from disposing of its shares pending Rs 10,247 crore tax demand. Sources said however that it was not being seen as an impediment in the merger because Cairn Energy will get shares of Vedanta Ltd in proportion to the merger ratio. This shareholding will continue to be locked till resolution of the tax dispute, they said. Vedanta may also merge its other cash cows, Hindustan Zinc Ltd and Bharat Aluminium. But that merger depends on government’s selling its residual stake in the companies to Vedanta.

“In addition, in line with the Group’s stated strategy to continue to simplify the Group structure, the Group continues to evaluate a transaction with the Government of India in relation to their minority stakes in Hindustan Zinc Ltd and Bharat Aluminium Company (BALCO),” Vedanta Resources said. <g data-gr-id="40">Government</g> owns 29.5 per cent stake in Hindustan Zinc, which holds cash of more Rs 30,000 crore. Queries sent to a Vedanta spokesperson on speculations about Cairn India with the company did not elicit any response.

Agarwal had in January said, the company is mulling merging Cairn India and Hindustan Zinc into his flagship Vedanta Group firm to create a global natural resources giant to rival Rio Tinto or BHP Billiton. He had said consultants have been appointed to explore if it would make sense to merge the two firms into Vedanta and will look at if it made sense to “keep oil and gas and energy companies separate or merge Hindustan Zinc, merge Cairn, so that we can have a company like BHP. That can be one model. It all depends on shareholders...How value can be created, how smooth. We are open for <g data-gr-id="87">merger</g> if the recommendation comes”.