Caught in the crossfire between the Government and Cairn Energy, Cairn India Ltd is expected to present the views of the minority shareholders' in the stake sale deal before its parent company.
With market buzz that Vedanta Resources could go back to the negotiation table following the Group of Ministers' (GoM) recommendation of conditional nod, uncertainty has been growing among the minority stakeholders, particularly retail investors, on their benefits.
Sources tracking the developments said a meeting between Cairn India and Cairn Energy is expected anytime now. They, however, did not disclose the details of the observations made by the two-member panel looking into the interests of minority shareholders' in the deal.
Current stakes
At Cairn India's AGM in September last year a two-member panel was set up following Cairn Energy's announcement to sell a maximum 51 per cent stake in its Indian arm to Vedanta for $8.48 billion. The panel consisted of independent directors Mr Omkar Goswami and Mr Edward Story.
Currently, according to Cairn India's latest corporate presentation: Cairn Energy holds 62 per cent in the company, Vedanta through Sesa Goa 19 per cent, FIIs eight per cent, institutions nine per cent, and retail two per cent.
Fears
According to estimates if the pre-conditions proposed by the Petroleum Ministry and endorsed by the GoM to make royalties paid by ONGC, partner in Rajasthan oilfields ‘cost recoverable', Cairn India will take a hit of $ 1.6 billion depending on oil price and other things.
Some of the minority shareholders feel that if the royalty is made cost recoverable, it will badly affect cash flows and earnings of the company. They also fear the share price might fall. Further, such a decision would have a material adverse impact on CIL's value and this would negatively impact the interest of all shareholders including minority shareholders.
Sharing of royalty was not part of the disclosures made when CIL went public four years ago, based on which many of them subscribed to the issue. Acceptance of any of these proposals was likely to be challenged by CIL's minority shareholders under the Companies Act, some said.
Though ONGC holds 30 per cent in the fields operated by Cairn India, it is required to pay 100 per cent royalty on production, since it is the licensee of the block. Till date the Rajasthan fields had generated revenues worth $3,796 million, of this ONGC's share is $986 million and Cairn India's $2,810 million.
Rajasthan crude price is at 10-15 per cent discount of brent average of previous year. The consolidated revenue of Cairn for FY11 was $ 2,255 million versus $ 342 million. The fiscal 2011 was the first full year of Rajasthan oilfields production.