Minority shareholders of Cairn India today raised concern over the company not getting a “fair valuation” in the USD 2.3 billion all-share merger with parent Vedanta Ltd and use of its over Rs 24,000 crore of cash pile.
At firm’s annual general meeting (AGM) of shareholders here, minority shareholders including United India Insurance raised the issue of valuation being unfair to minority shareholders in the offer of one ordinary share and 7.5 per cent redeemable preference share of Vedanta Ltd for very share they hold in Cairn India, sources said.
Cairn India shares had less than halved from Rs 382.75 they were trading in June, 2014 when the merger was announced last month. Though much of the decline has been attributed to slide in oil prices, the shares would have been much higher if Vedanta were to publicly state that it will not absorb Cairn for next three years or touch its cash.
Sources said the minority shareholders wanted to know the basis of valuation which was explained in details by Omkar Goswami, independent director on Cairn India board.
He, they said, explained the transparent valuation done by independent outsiders considering. “Shareholders applauded after the explanation,” said one source.
After the meet, Cairn India chief executive Mayank Ashar said the merger was “on track”.
The company, he told reporters, had received a “variety of perspectives” on the deal, a majority of which were positive.
“At the end of the day, the shareholders will make up their mind. What I saw was fairly positive reaction to the merger,” he said.
The merger needs approval of half of the non-promoter shareholders. Life Insurance Corp (LIC) holds 9.06 per cent and Cairn Energy plc of UK another 9.82 per cent of Cairn India. Vedanta owns a 59.88 per cent stake in Cairn India.
Sources said some shareholders do not want debt-laden Vedanta to have unfettered access to Cairn’s cash. Promoters have to repay next year a USD 1.2 billion of loan they had taken from Cairn India.
Overall, Vedanta Group has Rs 77,752 crore debt, a part of which can be paid using Cairn India cash.
Shareholders say Vedanta has not given a guidance for cash utilisation.
Earlier, addressing shareholders, company chairman Navin Agarwal said a stable and predictable investment regime and consistency in policy was needed to boost investor confidence.
He cited the example of the US where market pricing of oil and gas helped it move from being net importer of energy to a surplus nation now.
“Our nation is blessed with significant untapped oil and gas resources. However, the sector needs encouragement to maximise this potential. We need policies that are tailored to reflect and respond to India’s status of an oil and gas importer,” he said.
Agarwal said numerous resource rich countries offer lessons for India to translate resource wealth into broader economic development.
Citing the US example, he said its oil production growth in 2014 was highest in more than 100 years. The country is redefining the global energy landscape. Such turnaround in hydrocarbon sector offers constructive lessons for energy import dependent countries like India, Agarwal said.
“Investment climate and governance are key drivers for investments. A stable and predictable investment regime and a consistency in policy will help enhance confidence besides attracting domestic as well as foreign investments in the oil and gas sector,” he said.
While crude oil produced in the country is sold at international rates, natural gas is sold at a substantial discount to market rate. In case of Cairn, crude oil from its prolific Rajasthan block is sold at a marginal discount to its nearest globally traded benchmark crude to factor in for quality.
Cairn, that has also discovered gas in Rajasthan, has been pitching for higher crude oil and gas prices.
Navin, brother of mining baron Anil Agarwal, said an oil and gas “regime that integrates these philosophies, will not only spur domestic exploration and production activities, it will significantly reduce our dependence on expensive imports”.
Cairn, which in 2004 discovered Mangala oilfield in Rajasthan – the largest onland oil find in more than two decade – is majority owned by Anil Agarwal-led Vedanta Group.
India is over 78 per cent dependent on imports to meet its oil needs and over 36 per cent for gas requirement. Its imports top USD 110 billion.
Navin Agarwal said given the growth projections, this demand supply gap is expected to grow. International Energy Agency’s World Energy Outlook 2014 indicates that India’s annual net fossil fuel import bill will be over USD 500 billion in 2040.
“Clearly, this has serious ramifications for the Indian economy,” he said.
“We look forward to an encouraging business environment and policies from a progressive government to maximise the potential of the sector, which in turn will help enhance our efforts and contribution to nation building.”