ONGC's consent for transfer of control in Cairn India to Vedanta Resources is subject to Cairn Energy subsidiary and the Anil Agarwal-led firm signing a legally binding agreement to share royalty and pay cess on production from their Rajasthan field
New Delhi: State-owned Oil & Natural Gas Corporation (ONGC) may next week give consent for transfer of control in Cairn India to Vedanta Resources, provided the Cairn Energy subsidiary and the Anil Agarwal-led firm sign a legally binding agreement to share royalty and pay cess on production from their Rajasthan field, reports PTI.
The need for a legal document has arisen because Cairn India insisted on ONGC giving no-objection to the Cairn-Vedanta deal before it agrees to accept conditions that the government has set for clearing the $9 billion transaction.
Sources privy to the development said the ONGC board can waive its pre-emption rights only when Cairn India agrees to pay its share of the Rs2,500 per tonne cess on production from the all-important Rajasthan oilfields, as per its stake of 70%, and also makes royalty payments cost-recoverable.
ONGC holds 30% interest in the Rajasthan fields and Cairn previously felt the state-owned firm was liable to pay royalty and cess on its share of production, as well as Cairn's 70% participating interest.
"There is mutual distrust between the two partners," a source said. "Cairn doesn't want to agree to paying royalty and cess without getting a no-objection certificate (NOC) from ONGC, while ONGC doesn't want to give its consent without Cairn agreeing to the conditions set by the government."
A way out of this would be for ONGC, Cairn India, Vedanta and UK's Cairn Energy-which is selling its 40% stake in its Indian unit-to sign a legally binding document agreeing on the government conditions as well as a separate paper granting clearance to the transaction simultaneously.
Sources said ONGC board may on 27th September agree to waive its right of first refusal (ROFR) on the proposal, subject to Cairn India and others signing the legal document.
Upon the board approval, the legal agreement can be signed that very day if Cairn/Vedanta so desire, they said, adding that the NOC will be handed over upon signing of the papers.
SBI Caps, which had been appointed by ONGC to advice on exercising its pre-emption rights, has opined that the Rs355 a share price that Vedanta is paying Cairn Energy for buying a majority stake in Cairn India is too high a price.
Stating that SBI Caps was in the process of finalising its report, sources said the valuation-along with a recommendation for waiver of ONGC's ROFR over the deal-would be put before the state-run oil and gas explorer's board on 27th September.
In a postal ballot earlier this month, 97% of Cairn India's shareholders-including Cairn Energy (52.1%) and Vedanta (28.5%)-had voted for acceptance of the government conditions so that the transaction can conclude.
The company board, which met on 14th September, accepted the shareholder's mandate, but added a caveat that the conditions would be accepted only upon receiving a NOC from ONGC.
Sources said Cairn India had conveyed the same to ONGC in a formal letter it wrote shortly after the board meeting, seeking formal approval for the Vedanta deal.
Cairn India currently does not pay any royalty on its 70% stake in the Rajasthan fields. Royalty, as per the contract, is paid by state-owned ONGC, which got a 30% stake in the 6.5 billion barrel field for free.
However, even before the $9.6 billion Cairn-Vedanta deal was announced in August last year, ONGC had demanded that like all other taxes, royalty should be added to the project cost, considering it as revenues earned from oil sales before profits were split between partners.
Cairn had opposed this as it would lower its profitability and had also initiated arbitration against the government, contesting its liability to pay oil cess on its share. It believed that cess, like royalty, was also the liability of ONGC.
"The acceptance of royalty as being cost-recoverable and the withdrawal of the arbitration pertaining to cess will be concomitant with transfer of control of Cairn India," the company said in a letter seeking approval for the deal from ONGC, which holds a stake in eight out of the company's 10 properties in India.
Cairn currently produces 125,000 barrels of oil per day (bpd) from the Rajasthan block and believes the output could rise to 300,000 bpd (15 million tonnes a year).
Cairn Energy, which is selling a 40% stake in its Indian unit to Vedanta, had previously said it would rather call off the deal than force Cairn India to accept the government's conditions.
Cairn India had on 26th July stated that its April-June quarter net profit would halve to Rs1,435 crore if royalty on the Rajasthan crude oil was made cost-recoverable.
Mumbai Airport is the busiest and caters to the country’s financial capital, but is the only one without a bus shuttle—Bengaluru, Hyderabad, Kolkata and New Delhi already have such an efficient service in place
Time and again, we are reminded that Mumbai is India's financial capital, home to India Inc and a major contributor to the national exchequer. But if you have just touched down after a harrowing flight, heaven forbid if you don't have a vehicle waiting for you.
Even as major cities like Bengaluru, Hyderabad and Kolkata provide efficient and excellent airport shuttle services to passengers, the country's busiest airport Chhatrapati Shivaji International Airport at Mumbai is the only one which lacks such a shuttle service.
Moneylife has written on the plight of Mumbai's airport: Please See: You have landed at Mumbai. Where's the shuttle to go home? on 19th September, and the second part on 20th September BEST will start a dedicated Mumbai Airport shuttle but it wants a dedicated lane).
Transport experts say that if all other major cities provide such efficient shuttle services, it is even more important to start a similar service, with enough luggage handling systems and capacity to handle the high frequency of flights at Mumbai airport, considering the woes of travellers and growing passenger demand.
At the Bangalore International Airport Limited (BIAL), which is located 45km away from the city, the shuttle service started by the Bangalore Metropolitan Transport Corporation connects well with important parts of the city such as Jeevan Bhima Nagar, HAL Airport, JP Nagar, MG Road, Koramangala, Hebbal and outskirts such as Whitefield, and Electronics City.
This air-conditioned Volvo service called 'Vayu Vajra', has gained popularity among commuters for its high frequency-one bus in every 10-15mns-and spacious luggage compartments. It also has easy en route pick-up points. The service is available 24x7, which is in sync with arrival and departure schedules of BIAL and the fare is affordable, ranging between Rs80-Rs200. There is also a non air-conditioned shuttle service to BIAL, known as 'Suvarna', which offers comfortable travel and affordable fares.
A similar successful service is available in Hyderabad. For the 22km distance between the Rajiv Gandhi International Airport and the main city, an efficient bus shuttle named 'Aero Express' provides comfortable travel for passengers. It also has enough luggage space along with facilities such as mobile plug-in chargers, television etc.
Aero Express is an air-conditioned, non-stop bus (Volvo) service, which reaches important points in the city such as the Secretariat, Mehdipatnam, Kukatpally, Hitech City, LB Nagar, Begumpet, Tarnaka and also to twin city Secunderabad. The one-way fare is Rs180 and the to-and-fro airport fare is Rs300. The shuttle service is available round the clock with a frequency of 30 minutes.
Kolkata's Netaji Subhash Chandra Bose International Airport has a Volvo-based shuttle service in place. The West Bengal Surface Transport Corporation runs
air-conditioned buses every 30 minutes from the centre of town-Esplanade, connecting it with the airport. Volvo City Bus Services is a public-private partnership between the state's transport department and Kaushik Logistics in the Airport-Tollygunge route.
At Delhi airport, a recently started train service, the Delhi Airport Express, provides easy transport to passengers.
But as we have reported, public bus transport provider BEST is reluctant to provide a dedicated shuttle service to Mumbai's Chhatrapati Shivaji International Airport. It has demanded dedicated lanes to provide such a service. The absence of such a service is leaving passengers stranded at the airport terminals, for two hours at times, as cabbies often refuse to ply and there is a dearth of pre-paid taxis.
How long will passengers (not) be taken for a ride?
Indian domestic markets are more promising amidst the crisis in overseas equity markets. Therefore, investors should be prudent and adopt a wait-and-watch attitude in the equity market and not rush for the exit
While the domestic economy appears to be in better shape than those of the developed countries, stubbornly high inflation and the consequent aggressive stance of the Reserve Bank of India (RBI) have raised the possibility of GDP (gross domestic product) growth being lower than 7%. Developed stock markets have seen value erosion of 12%, while Indian markets have tanked 10% in three months.
According to brokerage firm IDFC, the demand scenario continues to be strong, with sectors like FMCG and retail clocking strong volume growth in the past three months. While some moderation is visible in certain segments of automobiles (the industry being an interest-rate sensitive category), demand for two-wheelers and LCVs (light commercial vehicles) remains healthy. There has been a sharp increase in deposit and lending rates, resulting in robust deposit mobilisation. Weak global demand has not adversely affected the Indian IT industry in its exports, as technology spending continues both in India and abroad.
Concerns on account of government policy to control inflation include the tight monetary policy adopted by the apex bank (325 basis points hike in interest rates since March 2010) has increased cost of funds (State Bank of India's prime lending rate, or PLR, is at an all-time high of 14.75%), impacting credit growth and discretionary spending in the economy. On the fiscal front, lack of positive policy triggers from the government has slowed down investment spends.
Moderation in commodity prices (likely on weak global demand outlook) and clarity on the interest rate cycle would be key triggers for Indian corporate entities for improvement in performance and consequently, earnings growth. When inflation declines and the RBI (Reserve Bank of India) lowers interest rates, it will be the trigger for improvement in sectors like infrastructure and capital goods, which in turn will kick-start the capex (capital expenditure) cycle.
As we are still in a high interest regime, investments have slowed down in infrastructure (power, roads, etc) and capital goods as rising interest rates have increased funding costs and pressured project IRRs (internal rate of returns). IDFC believes that order inflows are likely to be dull in the next few quarters, which will impact earnings visibility in FY13 and drive an earnings downgrade cycle. Havells and Kalpataru are the top performers in the current context.
Demand remains strong in the consumer goods sector with categories like shampoo, skincare, homecare and toothpaste continuing to see volume growth in the mid-teens, with no slowdown in rural or urban segments. Mature categories like soaps have slowed down to low single digits; but Hindustan Unilever and Godrej are still registering mid to high single-digit volume growth despite raising prices by high single digit levels. As a result, while revenue growth would sustain, margins would remain under pressure in the near term.
In the IT sector, larger players like Infosys and Tata Consultancy Services are better placed to sail through the challenging times. IT spends typically react to any contraction or recovery in economic activity with a lag of 3-4 quarters and this could be the challenge for larger companies, if the downturn persists.
In the real-estate sector, developers are willing to negotiate with genuine buyers though they are not reducing prices officially. Absorptions in NCR are also witnessing a slowdown, largely led by land acquisition issues in Noida/Greater Noida and sharp price appreciation in Gurgaon. While end-users are adopting a wait-and-watch strategy, investor interest is low due to limited upside potential in the value of properties. Meanwhile, demand in Bengaluru is steady, with moderate price appreciation. However, the trend is gradually shifting to high-end residential projects.
IDFC expects prices to appreciate in the near term although a 15%-30% correction is required to drive absorptions in markets like Mumbai and Gurgaon.
In the steel sector, a combination of cost support, supply flexibility and China's relative strength are set to arrest the sharp fall in steel prices. Therefore, while the risk of a financial collapse persists, IDFC expects that prices in all regions are now at levels that have strong support.