Will the shareholding pattern of Vedanta Ltd become a stumbling block to Anil Agarwal’s attempts at merging Cairn India with it? Yes, going by those associated with the decision-making process.
While Agarwal and his team are wooing minority shareholders like LIC as also the Finance Ministry (for tax purposes) and the Petroleum Ministry (for Production Sharing Contracts), they may have to reckon with the Foreign Investment Promotion Board’s (FIPB) though 100 per cent foreign direct investment is allowed in both mining and petroleum sectors.
This, according to a source in the know of the developments, is because, “The government would like to play it safe. Questions could be raised on the shareholding pattern of the entity, something similar to what happened in the Jet Airways-Etihad case.”
The Jet Airways promoter faced queries on Tail Winds, through which Naresh Goyal owned the majority stake in the airline. The case of Vedanta-Cairn India merger is that of a foreign company turning Indian and then becoming a foreign entity again.
In Cairn India, the promoter Vedanta Group holds 59.88 per cent and minority shareholder Cairn UK Holdings has 9.82 per cent stake with Foreign Institutional Investors controlling 14.26 per cent.
According to multiple sources, the FIPB can question the shareholding pattern of the promoters, who have invested through overseas arms like Twin Star Holdings.
In the case of Vedanta also queries can be raised on the promoters’ investments via foreign entities. Further, according to the proposal, Cairn India minority shareholders, including Cairn UK Holdings, are to get preference shares, and this, again, may require FIPB approval.
Officials in the Department of Industrial Policy & Promotion, while declining to comment, said the DIPP would look at all aspects of the matter once the proposal comes to it.
Vedanta Group expects to complete the entire process by the first quarter of calendar 2016. It proposes to have FIPB approval in place by the fourth quarter of calendar 2015. The companies applied to the SEBI for approvals on June 24.