ONGC, by virtue of its stake in eight out of the 10 oil and gas properties held by Cairn India, claims that it has pre-emption rights over the deal. It wants the issue of excess royalty it has to pay on Cairn India's Rajasthan block to be addressed
New Delhi: Amidst a scramble to meet deadlines, the government today said legitimate concerns of state-owned Oil and Natural Gas Corporation (ONGC) will need to be addressed before it can approve Vedanta Resources' $9.6 billion acquisition of Cairn India, reports PTI.
With time running out, Bill Gammell, the chief executive officer of Cairn Energy, which is selling up to 51% stake in its Indian unit to Vedanta, met oil minister S Jaipal Reddy to press for an early decision.
"I told him (Mr Gammell) that the government would support the deal in-principle, but some of the concerns of ONGC need to be addressed before clearing the deal," ME Reddy told reporters here. "He (Mr Gammell) seemed satisfied."
ONGC, by virtue of its stake in eight out of the 10 oil and gas properties held by Cairn India, claims that it has pre-emption rights over the deal. It wants the issue of excess royalty it has to pay on Cairn India's mainstay Rajasthan block to be addressed before giving its no-objection.
"We cannot be opposed to (Cairn Energy) selling (its) shares (in Cairn India)... ONGC is not prepared to buy (Cairn Energy stake) at the price (Vedanta is paying)," Mr Reddy said. "Given these conditions, we need to see that concerns of ONGC are substantially and legitimately addressed."
The deal, involving Vedanta acquiring a 40% to 51% stake from UK's Cairn Energy Plc and thereafter making an open offer to buy an additional 20% from minority shareholders of Cairn India, is to be completed by 15th April.
To meet the deadline, government approval for the deal needs to come within this month so that Vedanta can meet the 55-60 days' timeframe mandated by the Securities and Exchange Board of India (SEBI) for completion of the open offer.
Mr Gammell described the talks with Mr Reddy as "positive and constructive", but said Cairn will not go to its shareholders for extending the 15th April deadline to close the Vedanta deal.
"We would not go back to our shareholders," he said.
The Rajasthan block, which gives Cairn India 90% of its valuation, is a losing proposition for ONGC, as it has to pay 20% royalty to the state government on the entire output from the field, even though its share of production is only 30%.
The oil ministry has made resolution of the royalty issue one of the 11 preconditions for giving its nod. Cairn-Vedanta are opposed to ONGC's demand for recovering the royalty before profits from the sale of Rajasthan oil are split, as it will lower Cairn India's profitability and valuation.
"We are determined that concerns of ONGC are legitimately addressed," Mr Reddy said.
Asked about the February deadline that Cairn-Vedanta are looking at for getting government approval, he said: "We respect time pressure, but our concerns have to be addressed."
Cairn India does not pay any royalty on the crude oil and gas produced from the Rajasthan block and has even contested the payment of a Rs2,500 per tonne cess on its 70% share.
Oil secretary S Sundareshan had on Sunday met Mr Gammell, Cairn India CEO Rahul Dhir and Vedanta officials M S Mehta (Group CEO) and Tarun Jain (CFO) to hammer out differences on the preconditions, but there was no meeting ground.
Mr Reddy said the official will hold more discussions shortly on the issue.
Mr Sundareshan has already cancelled his 9-11 February trip to Calgary (Canada) for promoting oil blocks offered for bidding in the ninth round of NELP in order to meet the chief executive of Vedanta Resources and Cairn Energy again.
Joint secretary (exploration) DN Narasimha Raju, who was to accompany Sundareshan for the roadshow in Calgary and then proceed to Houston for another promotional show, will also stay back to discuss the finer points of the deal.
Market regulator SEBI has not permitted Vedanta to make the open offer to Cairn India shareholders in the absence of government approval for its deal with Cairn Energy.
Besides royalty, Cairn-Vedanta are also not agreeable to the ministry's demand that they will abide by its orders with regard to past and future operational disputes.
Vedanta, which has no prior experience in oil and gas sector, was agreeable to other conditions like giving financial and performance guarantees and maintaining technical capability of Cairn India.
ONGC says it would be paying Rs14,000 crore royalty on behalf of Cairn India over the life of Rajasthan fields and wants to recover it from the sale of oil.
Acceptance of the demand would impact Cairn India's valuation as its future profits will go down and the company saying its minority shareholder interest will be compromised.
While Cairn had reluctantly agreed to the need for government approval on the deal, it has so far not accepted ONGC's pre-emption or the right of first refusal (ROFR), as has been held by Solicitor General of India (SGI).
ONGC, which was kept out of yesterday's meeting, says Vedanta's acquisition of an up to 51% stake in Cairn India triggers its pre-emption rights.
Its board had, at its meeting on 29th January, passed a resolution asking the government not to approve the Cairn-Vedanta deal until the issue of excess royalty it pays on Rajasthan crude oil, is sorted out.
The Rajasthan block currently produces 1,25,000 barrels of oil per day and has potential to produce up to 240,000 bpd.
Cairn India acquired a stake in Rajasthan block RJ-ON-90/1 from Royal Dutch Shell Plc in 2002 and discovered oil in January 2004.
In case of areas awarded under the New Exploration Licensing Policy (NELP)-like the gigantic KG-D6 gas fields of Reliance Industries- royalty can be added to the capital and operating cost of the block, which as per law are deductible from revenues earned on the sale of oil or gas before calculating profits for all stakeholders.
The Rajasthan block is a pre-NELP acreage.
The CBI sought four more days of custody to interrogate Mr Raja saying that he was "not divulging any useful and crucial information" about his role in 2G spectrum scam
New Delhi: Former telecom minister A Raja was today remanded to two more days of Central Bureau of Investigation (CBI) custody by a court here for further interrogation after the agency submitted that he was not divulging any "useful information" regarding his role in the second generation (2G) scam, reports PTI.
Special judge OP Saini also sent former telecom secretary Siddartha Behura and Mr Raja's former personal secretary RK Chandolia to Tihar Jail under judicial custody as the agency said it no longer needs them in its custody.
Mr Raja will remain in CBI custody till 10th February.
The trio, arrested by the agency on 2nd February for their alleged role in the 2G spectrum allocation scam, involving a loss of Rs22,000 crore to the public exchequer as per the CVC estimates, were produced before the special judge following expiry of their five-day custody with the CBI.
After producing the trio before the court, the CBI sought four more days of custody to interrogate Mr Raja saying that he was "not divulging any useful and crucial information" about his role in 2G spectrum scam.
"Some more documents are to be recovered and accused A Raja is to be confronted with them," senior CBI prosecutor Mr Akhilesh submitted.
Refuting allegations by Mr Raja's counsel Ramesh Gupta that the agency had not disclosed to the court the outcome of the probe conducted so far in this case, Mr Akhilesh said, "The case diary has already been submitted to the court. Each and everything cannot be disclosed in the open courtroom."
Opposing CBI's demand for four more days of Mr Raja's custody, Mr Gupta said, "I am not having the custody of any document, which the CBI wants to recover from me."
"Whatever documents were there, they have already been seized by them in 2009 itself," he added.
About Mr Behura and Mr Chandolia, the CBI counsel said the agency no longer needs their custody. "The two can be sent to Tihar Jail under judicial custody," he said.
The market has turned extremely weak and may go down by 5% subject to weak rallies
The market opened with modest gains on support from metal, banking, IT and power stocks. It soon pared some of the initial gains as profit-booking set in, leading the indices into the red in mid-morning trade. The market traded in a narrow range in noon trade.
Selling pressure resulted in a slow southward journey and the market finishing near the day's low. The broader markets underperformed the benchmarks in today's session.
As suggested on Friday, a new downturn has started. The Sensex and Nifty opened higher at 18,142 and 5,432 respectively. This was the day's high and soon the market slipped below yesterday's closing. Thereafter it fell below yesterday's low and also below Friday's low. After 2.30PM, the market began to weaken suddenly and the Sensex and Nifty hit a new low point since July 2010-hitting 17,742 and 5,303 respectively during the day.
The Sensex declined 261 points to 17,776 and the Nifty fell 83 points at 5,313. The advance-decline ratio on the National Stock Exchange (NSE) was a dismal 229:1476.
The market breadth on the Sensex and the Nifty was in favour of the losers today. The Sensex closed with 25 stocks in the red and five in the green, while the Nifty had 43 decliners against seven gainers.
Among the broader markets, the BSE Mid-cap index tumbled 2.42% and the BSE Small-cap index plunged 3.23%.
All sectoral gauges closed in the red today. BSE Consumer Durables (down 3.81%), BSE Realty (down 3.08%), BSE Auto (down 2.70%), BSE Bankex (down 2.28%) and BSE Oil & Gas (down 2.06%) were the top losers.
Bajaj Auto (up 1.69%), Tata Power (up 1.47%) and Cipla (up 0.83%) were the noteworthy gainers in the Sensex list. Mahindra & Mahindra (M&M) (down 5.97%), ONGC (down 5.58%) and Jaiprakash Associates (down 5.21%) were the major losers.
Ahead of the budget, finance minister Pranab Mukherjee today said that exporters will have to 'fight' their own battle and stop expecting fiscal incentives from the government.
Unveiling a report that listed measures for cutting export transaction costs, the finance minister said the country's exporters must "innovate and become more productive."
Most markets in Asia settled lower as concerns about possible harsher policy decisions by nations in the region weighed on investors. The Bank of Korea is expected to decide on further rate hikes in its meeting on Friday.
Besides, as mentioned earlier, the forthcoming Union Budget (which will be announced on 28th February) is expected to be a harsh one.
Coming back to Asia, the Hang Seng fell by 0.29%, the Jakarta Composite declined 0.80%, the Straits Times lost 0.21%, the Seoul Composite shaved off 0.58% from its yesterday's close and the Taiwan Weighted ended 0.37% lower.
On the other hand, the KLSE Composite gained 0.26% and the Nikkei 225 rose 0.41%.
Back home, institutional investors-both foreign and domestic-were net sellers of stocks on Monday. Foreign institutional investors offloaded stocks worth Rs65.47 crore and domestic institutional investors sold equities worth Rs12.40 crore.
Hindustan Construction Company (down 3.48%) has informed the BSE that the company has received a Letter of Award from Kanti Bijlee Utpadan Nigam for construction of main plant, CW, offsite civil works and chimney and chimney elevator package for the Muzaffarpur Thermal Power Project, Stage-II (2x195MW) in Bihar.
The value of the contract is Rs232.07 crore. The project is expected to be completed in 34 months from the date of issue of the order.
India's largest tractor & sports utility maker, M&M (down 5.97%) on Monday announced its entry into the construction equipment business with the launch of the first indigenously developed backhoe loader, the 'Mahindra EarthMaster'.
The company has invested Rs300 crore in manufacturing and product development and will manufacture 200 units per month at its Chakan plant near Pune, M&M's president, Automotive and Farm Equipment Sectors, Pawan Goenka said, adding that the capacity will increase to 300 units per month next year.
India's largest private sector bank, ICICI Bank (down 2.98%), has joined hands with Aircel to drive financial inclusion in the country. Under the deal, the duo will offer various financial products including savings accounts, prepaid instruments and credit products.
The partnership is expected to bring the unbanked and under-banked population into the organised financial services framework and further assist in electronic payments market in India. ICICI Bank will leverage the distribution strength of Aircel.