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Cairn India’s dividend payouts are crucial for Vedanta Group to service debt it had raised to acquire the oil company, credit rating agency Moody’s Investors Service said today.
Cairn this week announced a final dividend of Rs 6.5 per share, taking total dividend declared for 2012-13 to Rs 11.5 per share or about $407 million.
Moody’s Investors Service said the dividend payout was on expected lines and “there is no immediate impact on Vedanta Resources Plc’s Ba1 corporate family rating.”
“The rating remains under review for possible downgrade,” it said.
“Cairn’s payment of dividends is crucial for Vedanta given its reliance on the up—streamed dividend to service the debt raised to acquire its stake in Cairn,” said Alan Greene, a Moody’s Senior Credit Officer in a note.
The dividend was more important for its co-shareholder, Sesa Goa Ltd, which is currently losing money on its core iron ore operations due to the mining restrictions imposed in Goa and Karnataka, and which has its own debt to service.
Vedanta owns a 38.7 per cent stake in Cairn through a Mauritius holding company, and 20.1 per cent indirectly through Sesa Goa.
“Absent an improvement in base metal prices and the continuing mining ban in Goa, we expect Cairn to remain as Vedanta’s main EBITDA contributor over the next 12 months,” Greene said.
Cairn will invest over $3 billion over the next three years in development and exploration activities, aiming at unlocking further potential within the Rajasthan block and potentially outside Rajasthan.
“Moody’s expects both this level of capex and dividend to be funded without reducing the $3 billion of cash and cash equivalents reported by Cairn,” the note said.
Cairn’s reported cash flow from operations was $2.034 billion in 2012-13.
Moody’s Investors Service said the January-March quarter was weaker for Cairn as compared to same period the previous year as the increase in the cess rate and lower realised prices per barrel offset the volume gains.
In Q4 2012-13, Cairn reported EBITDA of $534 million compared to $581 million a year earlier.
“Nevertheless, Cairn is stepping up exploration activity and EBITDA should be bolstered as additional wells are drilled and completed, and once the field development plan is approved,” it said.
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