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In a fresh salvo that might affect the Cairn India-Vedanta Ltd merger, two of the largest minority shareholders of Cairn India have approached the independent directors of Cairn India questioning the tenure extension of $1.25 billion inter-corporate loan to THL Zinc, a Vedanta Group company.
The minority shareholders, Cairn Energy Plc and Mondrian Investment Partners, have both expressed concerns about possible violations of SEBI’s Listing Obligations and Disclosure Requirements by Cairn India Ltd.
Informed sources said that objections were also raised by some top executives within Cairn India.
Cairn Energy Plc holds 9.82 per cent stake in Cairn India, while Mondrian Investment Partners holds 3.76 per cent and the two are among the three largest minority shareholders CIL.
According to letters accessed by BusinessLine , Mondrian Investment Partners on July 18 wrote to Cairn India to ‘express concerns’ over the implications of corporate governance and requesting clarification of the compliance of the extension of inter-corporate loan tenure with SEBI’s Listing Agreement and Cairn India’s Policy for Related Party Transactions.
“…in order to comply with the terms of the Listing Agreement, we believe that the transaction should require the approval of minority shareholders through a special resolution, yet this approval was not sought,” Mondrian Investment wrote in a letter addressed to Sudhir Mathur, Acting Chief Exectuive Officer, Cairn India.
The letter further added that the initial disclosure of the loan to THL Zinc in 2014 had caused ‘deep concern’ for Mondrian and gave a perception that the controlling shareholder was diverting company funds for their benefit.
Mondrian Investment also stated in the letter that if the merger with Vedanta Ltd goes through according to the timeline stated earlier in July, the related party loan will never be repaid and Cairn shareholders will not receive their fair share of the value of the group’s current resources.
When contacted by BusinessLine , London-based Mondrian Investment declined to comment stating that they are a privately held company and do not wish to be quoted.
On July 22, Cairn India and Vedanta announced revised terms for merger under which for each share of Cairn India a shareholder will get one share of Vedanta as well as four redeemable preference shares in Vedanta. The revised terms valued Cairn India at a 20 per cent premium to the one month weighted average share price.
The target date for completion of the transaction is in the first quarter of the 2017 calendar year.
In the original terms of the merger announced in 2015, each share of Cairn India was to get one share of Vedanta and one redeemable preference share of Vedanta.
Similar concerns over violation of SEBI’s Listing Agreement by Cairn India were raised by Cairn Energy before the board decided to formally extend the tenure of the $1.25-loan given to THL Zinc.
Cairn Energy Plc wrote to the independent directors on May 3 stating that Cairn India has failed to ‘adequately protect’ the interests of minority shareholders.
Cairn Energy’s letter to independent directors said that Cairn India’s former Managing Director and Chief Executive Officer Mayank Ashar had stated publicly after the fourth quarter results that the company is considering an extension on the tenure of the inter-corporate loan given to THL Zinc.
“There has been no suggestion that shareholder approval will be sought in respect of such action…we believe that this contravenes a number of CIL’s continuing obligations,” the letter stated.
Cairn India first disclosed the $1.25-billion inter-corporate loan to Vedanta group company THL Zinc in May 2014.
The original tenure of the loan was for two years.
After the disclosure, SEBI’s Listing Agreement has changed and the changes require ‘material’ related party transactions to require minority shareholder approval.
Earlier this year, before the tenure of the loan expired, Cairn India on May 12 agreed to extend the tenure for two years without seeking a nod from the minority shareholders.
(With inputs from Richa Mishra)
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