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Cairn India gets a conditional clearance for sale of stake to Vedanta
The Cabinet Committee on Economic Affairs has endorsed the group of ministers’
recommendation and granted conditional nod to the sale of stake in Cairn India to
Vedanta Resources. The two main conditions are that Cairn will have to allow cost recovery
of royalty on Barmer crude from the revenue it earns from the field, and it will have to
withdraw the arbitration case against the government. The total royalty burden over the
project life is estimated to be `18,000cr. In addition, the cess of `2,650/tonne on crude oil
will have to be borne by Cairn. However, this deal is subject to acceptance by the Board of
Cairn. In case Cairn accepts the conditions, it will have a negative impact on Cairn’s
valuation as it will lead to higher outflow of royalty. Nevertheless, this development will be
positive for ONGC as it will save on royalty costs (approximately `13,600cr). We continue
to have a Neutral rating on Cairn, while we maintain our Buy rating on ONGC with a
target price of `336.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn India gets a conditional clearance for sale of stake to Vedanta
The Cabinet Committee on Economic Affairs has endorsed the group of ministers’
recommendation and granted conditional nod to the sale of stake in Cairn India to
Vedanta Resources. The two main conditions are that Cairn will have to allow cost recovery
of royalty on Barmer crude from the revenue it earns from the field, and it will have to
withdraw the arbitration case against the government. The total royalty burden over the
project life is estimated to be `18,000cr. In addition, the cess of `2,650/tonne on crude oil
will have to be borne by Cairn. However, this deal is subject to acceptance by the Board of
Cairn. In case Cairn accepts the conditions, it will have a negative impact on Cairn’s
valuation as it will lead to higher outflow of royalty. Nevertheless, this development will be
positive for ONGC as it will save on royalty costs (approximately `13,600cr). We continue
to have a Neutral rating on Cairn, while we maintain our Buy rating on ONGC with a
target price of `336.
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