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ONGC planning counter offer for Cairn stake?

business Updated: Aug 19, 2010 20:38 IST
HT Correspondent
HT Correspondent
Hindustan Times

Is the state-owned Oil and Natural Gas Corp (ONGC) gearing up to make a counter offer to buy Cairn Energy Plc’s stake in Cairn India, which under a $9.6 billion (R45,000 crore) deal has been committed to Anil Agarwal-run Vedanta Resources?

While this remains to be seen, different versions emerging from within ONGC’s management, makes it clear that something is definitely brewing within ONGC with regard to the Cairn-Vedanta deal.

An executive on ONGC’s management said, “We are evaluating all options. But we still have two more months and we cannot disclose our strategy.”

He did not, however, deny the idea of a counter offer to Cairn Energy. Another senior official of ONGC said, “It is more a media speculation than anything else.” said an executive on ONGC’s management. He was reacting to reports that ONGC will have to pay over $13 billion if it were to exercise its pre-emption or right of first refusal to buy Cairn India in the Rajasthan block.

“Don’t put such vague numbers. This is far too inflated,” the ONGC official said, seeking anonymity.

As per UK takeover rules, Cairn Energy has to seek shareholders’ nod and other regulatory approvals for the sale before Vedanta’s open offer opens on October 11.

“That means, it will have to publish a prospectus for the sale by mid-September and call extraordinary general meeting of shareholders by end-September or early October.”

Another important date is September 7 — the cut off date set by Vedanta for making an open offer to minority shareholders of Cairn India for acquisition of 20 per cent shares.

Cairn India holds 70 per cent operator interest in the 6.5 billion barrels Rajasthan block that is at the centre of its parent, Cairn Energy’s billion dollar deal to sell its majority stake in the company to Vedanta Resources.

“At R355 a share (the price at which Vedanta is acquiring Cairn Energy shares), Cairn India is valued at over R67,355 crore or $14.6 billion. Almost 90 per cent of this value is because of the Rajasthan block that can produce 240,000 barrels of oil per day (12 million tonnes per annum),” said the PTI report.

ONGC, by virtue of its 30 per cent equity stake in the Rajasthan block, has the pre-emption or ROFR to buy Cairn India in case the company’s ownership changes.

“If it has objections to the Cairn Energy-Vedanta deal, it will have to seek to buy out Cairn India in the Rajasthan block by making a higher offer that would work out to $13 billion,” the PTI report said.

Cairn’s Production Sharing Contract with the government for the Rajasthan block provides for explicit government approval only if a party sells its interest in the block. And the Cairn India-ONGC joint operating agreement gives partners pre-emption rights only in case of sale of interest by either parties.