Cairn cleared for India sale to Vedanta

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Cairn cleared for India sale to Vedanta

London-listed Cairn Energy can press ahead with its much-delayed USD 6.5bn sale of a controlling stake in its Indian unit to Vedanta, after receiving the outstanding approvals from the Indian government.

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London-listed Cairn Energy can press ahead with its much-delayed USD 6.5bn sale of a controlling stake in its Indian unit to Vedanta, after receiving the outstanding approvals from the Indian government.

Vedanta's bid for Cairn India , which operates fields in Rajasthan, has faced strong regulatory scrutiny in India since it was launched 15 months ago. The production contract has had to be renegotiated after a dispute over royalties to be paid to the Indian government. David Cameron, the British prime minister, intervened earlier this year to try to break the deadlock.

"We are there," a spokesman for Cairn India told the Financial Times, after receiving security clearance from India's Home Ministry.

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The group has also received a "no objection" certificate, first agreed in September, from India's Oil and Natural Gas Corporation (ONGC), its partner in the oil venture.

The wrangling over the Cairn transaction, and a USD 2.5bn additional tax bill levied upon telecoms company Vodafone's acquisition of Hutchison Whampoa's Indian assets, have created anxiety about the treatment of large foreign investments in India.

Cairn Energy had earlier hoped the deal would be completed by the end of September but some feared it would drag into 2012. The security clearance means that the transaction can be completed in the coming days to allow London-listed Vedanta to take up a controlling stake in Cairn India.

The Indian cabinet agreed a new set of conditions for the sale earlier this year, including the sharing of royalty payments with ONGC, which owns 30 per cent of the Rajasthan fields. Until now, ONGC has been responsible for all royalty payments. The new conditions also include the withdrawal of arbitration over a tax dispute.

Under the revised offer, Cairn Energy will retain a 22% stake in Cairn India. It expects that the resolution of the dispute over royalties will open the way for improved co-operation with ONGC and a rapid expansion of production in Rajasthan, which was stalled by the uncertainty surrounding the deal.

The revisions mean that Cairn Energy is no longer bound by non-compete terms set out in Vedanta's original bid of August last year. The Edinburgh-based company would have the freedom to explore for oil and gas in India separately from the Vedanta-controlled Cairn India.

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