Cairn merger to create capital-efficient entity: Vedanta

Merger of cash rich oil explorer Cairn India with its debt-laden parent Vedanta Ltd will create a more capital efficient structure, Vedanta CEO Tom Albanese said on Friday. The sweetened merger deal, he said, has received "constructive feedback" from minority shareholders, who hold the key to the amalgamation.

The merger will create a stronger company. "It will basically (create a) more efficient capital structure, it will get re-rating and ultimately the re-rating will benefit shareholders of both the companies," he said here. In a bid to salvage the the deal, billionaire Anil Agarwal-led Vedanta Group last month sweetened the deal by offering three additional preference shares in hope of winning over minority shareholders like LIC and Cairn Energy plc of UK. The $2.3 billion all-share transaction was originally announced on June 2015 and the deal to create India's largest diversified natural resources firm, which could compete with BHP Billiton Ltd and Vale SA, was to close in March this year. But winning over half of the minority shareholders including LIC, which was said to be opposed to the deal, was providing to be difficult and so Venta offered one equity share and four redeemable-preference shares with a face value of Rs 10 each.

The preference shares will carry a coupon of 7.5 per cent and tenure of 18 months. "One could ask a question why did you increase ratio in favour of Cairn shareholder. I think it was pragmatic response by the boards recognising that there is importance to get support of both shareholders," he said.

The revised and final terms of the merger were at a 20 per cent premium to share price of prior 30 days period, he said adding mergers of this kind in India are usually done at a discount.