India’s Cabinet has finally given the go-ahead for London-listed mining company Vedanta Resources to take over Cairn Energy’s prized India assets, nearly 11 months after the two companies first announced plans for the $9.6bn deal.
However, New Delhi will require Cairn India’s new owner to take on more of the lucrative oilfields’ royalty burden, which until now has been borne by the state-owned Oil & Natural Gas Corp.
New Delhi’s decision comes just days after Vedanta and Cairn Energy agreed to restructure the terms of the deal, shaving $650m off the purchase price for the company, a tacit acknowledgement of likely imposition of the new conditions on royalty.
The approval culminates months of intense lobbying that even involved the British government, which expressed concern about the repeated delays over what should have been seen as a relatively straightforward corporate takeover, and the signal it sent about India’s business climate.
“This chapter is over, after a long while,” said S. Jaipal Reddy, India’s oil minister.
The deal had come to be seen as a test of whether foreign investors in India could make an exit from their investments when and to whom they wanted. The long delays were also seen as damping investor sentiment, particularly in the oil and gas sector.
Many analysts suggested that the long delays in the approval process reflected New Delhi’s discomfort with allowing Vedanta’s founder, Anil Agarwal, a self-made billionaire, to take control of the strategically important oilfields.
Vedanta’s track-record in its other operations has been controversial, with allegations over its attitude towards India’s environmental laws.
However, Mr Agarwal has been relentless in his quest to take over Cairn India, which he believes will transform Vedanta from a mere metals mining company into an influential integrated natural resource group.
In the last few months, Vedanta has already built up an 18.5 per cent stake in Cairn India, purchasing a stake from Malaysia’s Petronas, and additional shares from minority shareholders through an open public offer.
This week, Vedanta and Cairn Energy announced that Vedanta would buy another 10 per cent stake from Cairn Energy by July 11, regardless of whether New Delhi had made a decision on the deal.
Cairn India’s board, which has long resisted suggestions that it should share the royalty burden, will now have to decide whether the government’s conditions are acceptable, which would pave the way for the deal.
A Cairn spokesperson said: “We’re not saying anything at the moment…we won’t comment until there is a formal statement we know about.”