Vedanta used Cairn loan to repay inter-company loan

Cairn India’s USD 1.25 billion loan to its promoter group, which had spooked investors, was used by Vedanta Ltd to repay another inter-company loan…

Cairn india
Cairn said it had initiated arbitration challenging levy of tax under UK-India Investment Treaty. (Image: Cairn India website)

Cairn India’s USD 1.25 billion loan to its promoter group, which had spooked investors, was used by Vedanta Ltd to repay another inter-company loan taken for acquisition of the oil company.

Cairn had on July 23, 2014 disclosed in an investor presentation that it had extended USD 1.25 billion of loan from its cash pile to Sesa Sterlite, which was later renamed Vedanta Ltd.

The move had at that time raised questions about related party transaction without proper disclosure and minority shareholder approval and led to Cairn stocks tanking by most in five years.

London-listed Vedanta Resources, the parent firm of Vedanta Ltd, in a presentation made to investors on September 9 stated that the USD 1.25 billion was used to repay USD 800 million of principal and USD 450 million for interest on another inter-company loan.

The USD 1.25 billion two-year inter-company was extended by Cairn India Ltd to “a wholly owned overseas subsidiary of Vedanta Ltd in Q1 FY2015…on arm’s length terms and conditions with an annual interest rate of LIBOR+300 basis points,” it said.

“The wholly owned overseas subsidiary has used the proceeds of USD 1.25 billion to pay USD 450 million accrued interest and USD 800 million of the principal of the separate inter-company debt extended from VED (Vedanta Resources) plc to SSLT (Sesa Sterlite),” it added.

Vedanta Group had in 2011 acquired 58.5 per cent controlling interest in Cairn India Ltd from its UK parent, Cairn Energy plc. 20 per cent of this was acquired by Vedanta Ltd and 38.5 per cent by Twinstar Mauritius Holdings Ltd (TMHL) – a special purpose vehicle (SPV) wholly owned by Vedanta Resources plc (VED).

The acquisition by TMHL was funded by USD 4.43 billion of debt made up of bank debt sured by Cairn India shares and parent company guarantee/loan from VED.

In August 2013, Vedanta Ltd acquired TMHL from VED.

Vedanta Ltd had in its April-June quarter earnings presentation stated that: “As on June 30, 2015, debt at Cairn acquisition SPV comprises Rs 8,926 crore of bank debt and Rs 16,564 crore of inter-company debt from Vedanta Resources Plc. There was accrued interest of Rs 405 crore on the inter-company debt as on 30 June 2015.”

The USD 1.25 billion inter-company loan is repayable to Cairn India in July 2016. But it will get cancelled if the proposed all-share merger of Cairn India with Vedanta Ltd goes through.

Vedanta Resources had a debt of USD 7.7 billion debt as on March 31, 2015 while Vedanta Ltd had another USD 4.57 billion debt. Zero-debt Cairn India, on the other hand, has USD 2.85 billion cash.

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