Cairn India :: The plot thickens. :: Kotak Securities

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Cairn India (CAIR)
Energy
The plot thickens. ONGC has notified the stock exchange clarifying the following key
aspects with respect to the proposed Cairn-Vedanta transaction—(1) the proposed
transaction amounts to effective assignment of participating interest, (2) ONGC’s
consent is required for the transaction and (3) ONGC has the option of exercising its
pre-emptive rights over the participating interests held by Cairn India in various blocks.
We see ONGC’s assertion of its pre-emptive rights as further complicating the proposed
Cairn-Vedanta deal, resulting in significant delays.


Proposed transaction amounts to assignment of participating interest
In a notification to the stock exchanges, ONGC has stated that the proposed Cairn-Vedanta
transaction amounts to effective assignment of participating interest in various blocks. Thus,
ONGC believes that its approval will be required for the completion of the deal.
“An examination of the relevant documents and the facts of the proposed transaction clearly
indicate that the change of control of Cairn India Limited and acquisition of majority stake therein
by the proposed buyer (and/or its affiliates) would amount to an effective assignment of
participating interests held by Cairn India Limited and/or its affiliates in the various oil blocks/fields
for the purpose of the agreements signed by it with the Government of India and ONGC”
ONGC asserts pre-emptive rights
We see ONGC’s assertion of its pre-emptive rights over participating interests of Cairn India in its
various blocks as complicating matters further. We are not sure about the validity of ONGC’s preemptive
rights but note that if withheld, it could result in innumerable possibilities with ONGC
having the option to choose blocks in which to exercise the rights. This could result in further delay
in the proposed open offer. As per ONGC’s notification to the stock exchange,
” We have therefore viewed that, in accordance with the terms of the relevant agreements, the
consent of ONGC would need to be sought for the proposed transaction, and ONGC would also
have the option of exercising its pre-emptive rights in relation to the participating interests held by
Cairn India Limited and/or its affiliates.”
Details sought for further course of action
We note that ONGC has requested Cairn Energy to provide (1) full details of agreements and other
arrangements entered between Cairn Energy and Vedanta and (2) details of proposed buyer’s
financial strength, technical capability and past experience in oil and gas sector to decide on the
future course of action. We are not sure if Cairn would agree to this request and a contrarian
stance may delay the proposed deal even further.