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The Cabinet Committee on Economic Affairs (CCEA) today approved the
Vedanta Group’s acquisition of a majority stake in Cairn India, with the
pre-conditions that royalties (paid entirely by 30% partner ONGC) become
cost recoverable, and that Cairn India drop its arbitration over the amount
paid as cess.
CCEA approves takeover: The CCEA today approved the Vedanta
group’s proposed acquisition of a controlling stake in Cairn India, with
pre-conditions on royalty cost recoverability and cess arbitration. The
govt. pre-conditions will now have to be accepted by the Cairn India
board to facilitate the deal.
Royalties to be cost recoverable: The CCEA has stated that the royalty
paid on production from the block (paid entirely by ONGC) being cost
recoverable would be a precondition for govt. approval. We estimate an
NPV impact of ~21-23% in this scenario.
Cess arbitration must be dropped: The CCEA also stated that it
expects Cairn to drop its arbitration over the cess to be paid on the block,
as a precondition for approval. Cairn currently pays Rs2625/MT in cess
under protest (and believes the outgo should be 0, or at most Rs927/MT).
We have already factored the higher cess of Rs2625/MT in our estimates.
Company approval the next step: With govt. approval now in place,
the board of Cairn India will have to decide on whether they accept the
preconditions set by the CCEA. Prima facie Cairn Energy PLC and
Vedanta PLC seem to have accepted a lower asset value for Cairn India
through the waiver of the non-compete agreement.
Valuations remain rich: Adjusting for the cost recoverability of
ONGC’s royalty payments, we estimate that Cairn is factoring in a longterm crude price of $106/bbl (against our estimate of $85/bbl)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Cabinet Committee on Economic Affairs (CCEA) today approved the
Vedanta Group’s acquisition of a majority stake in Cairn India, with the
pre-conditions that royalties (paid entirely by 30% partner ONGC) become
cost recoverable, and that Cairn India drop its arbitration over the amount
paid as cess.
CCEA approves takeover: The CCEA today approved the Vedanta
group’s proposed acquisition of a controlling stake in Cairn India, with
pre-conditions on royalty cost recoverability and cess arbitration. The
govt. pre-conditions will now have to be accepted by the Cairn India
board to facilitate the deal.
Royalties to be cost recoverable: The CCEA has stated that the royalty
paid on production from the block (paid entirely by ONGC) being cost
recoverable would be a precondition for govt. approval. We estimate an
NPV impact of ~21-23% in this scenario.
Cess arbitration must be dropped: The CCEA also stated that it
expects Cairn to drop its arbitration over the cess to be paid on the block,
as a precondition for approval. Cairn currently pays Rs2625/MT in cess
under protest (and believes the outgo should be 0, or at most Rs927/MT).
We have already factored the higher cess of Rs2625/MT in our estimates.
Company approval the next step: With govt. approval now in place,
the board of Cairn India will have to decide on whether they accept the
preconditions set by the CCEA. Prima facie Cairn Energy PLC and
Vedanta PLC seem to have accepted a lower asset value for Cairn India
through the waiver of the non-compete agreement.
Valuations remain rich: Adjusting for the cost recoverability of
ONGC’s royalty payments, we estimate that Cairn is factoring in a longterm crude price of $106/bbl (against our estimate of $85/bbl)
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