India's largest private miner Vedanta Ltd has offered to buy out minority shareholders in cash-rich oil and gas unit Cairn India, a move that will streamline debt-burdened parent Vedanta Resources Plc's operating structure.
Shareholders in Cairn India, India's top private oil producer, will get one share in Vedanta Ltd for every held, the companies said in a joint statement after their boards approved the transaction on Sunday. They will also get one redeemable preference share in Vedanta Limited.
“The merger of Cairn India and Vedanta Limited consolidates our position as India’s leading diversified natural resources champion, uniquely positioned to support India’s economic growth. The independent Directors, at both Vedanta Limited and Cairn India, unanimously recommend the proposed combination,” said Anil Agarwal, chairman of Vedanta Ltd, in a press statement.
“This marks a significant step towards achieving our stated long term vision of a simplified group structure with alignment of interests between all shareholders for the creation of long term sustainable value,” he added.
Debt-burdened Vedanta began simplifying its byzantine structure with a 2012 overhaul, but further moved to simplify the group and buy out minorities in cash-rich subsidiaries that have long been awaited by the market.
News of the possible merger of Cairn India with Vedanta Ltd have been doing the rounds for some time and has angered the minority shareholders of Cairn India who feel that their company’s cash reserves are the main reason for the merger with parent company.
Vedanta Ltd, India's top producer of aluminum and copper, is the nation's second-most indebted metals company and its annual interest costs is nearly three times that of the London parent. It has a debt of Rs 77,752 crore, excluding a USD 1.25 billion inter-company loan from Cairn India.
On Friday, Vedanta Ltd was down 1.9% at Rs 184, while Cairn India fell 0.1% to Rs 180.75.
Through the merger, Agarwal plans to use Rs 16,867 crore cash lying with Cairn to pay off part of Vedanta's debt. The long-anticipated move would take Agarwal a step closer to achieving his ambition of building an India-integrated resources group in the mould of Rio Tinto or BHP Billiton.
Cairn India is almost 60% owned by Vedanta.
(With inputs from Agencies)