The Hindu Business Line : Cairns to await valuation by market in cash cum share swap deal

The Scotland-based Cairn Energy Group would rather have the valuation of its Indian business determined through market forces, according to official sources. The Group would shortly undertake a public floatation of shares of its Indian affiliate Cairns India Ltd (CIL).

The Group currently holds the property through a Jersey Channel Island-based wholly owned subsidiary, Cairns India Holdings Ltd (CIHL), which in turn is controlled by a UK-based company Cairns UK Holdings Ltd (CUHL).

At present, Cairn Energy holds 100 per cent stake in CUHL. The latter in turn holds an identical stake in CIHL. The new plan is that CIL will eventually become 100 per cent owner of CIHL for which it will pay in cash after completing its public issue, sources said.

They said that the final amount of the consideration due to CUHL from the Indian subsidiary for the stake held by CIHL would be determined only after the IPO is through. The amount due to CUHL would involve a mix of cash and CIL shares, sources said.

First, CUHL will invest more than $1 billion in cash in CIL through the Reserve Bank of India's automatic route. After CIL receives the funds from CUHL, in the second transaction, CIL will use this fund to acquire 20 per cent stake of CIHL from CUHL, the company has informed the Foreign Investment Promotion Board (FIPB).

The company has told the FIPB that only after completing these two transactions it will launch the IPO. Subsequent to completion of the IPO, CIL would again enter into the third cash transaction with CUHL for acquiring the balance equity shares (10 per cent) in CIHL.

The company has further informed that at the same time as the IPO, through a swap deal CIL would issue up to 70 per cent of its post-issue capital to CUHL in exchange for shares of CIHL and CUHL will subscribe for these shares in exchange for the transfer of an additional stake of up to 70 per cent in CIHL to CIL. This will take CIL's holding in CIHL to 90 per cent.