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The stock of Cairn India surged past the price offered by Vedanta Resources to retail shareholders to acquire a stake in the company.
The stock closed at Rs 358 on the NSE and at Rs 357.55 on the BSE against Sesa Goa's — one of the Indian arms of Vedanta Plc — proposed open offer price of Rs 355.
Mr Anil Agarwal-controlled Vedanta Plc proposed in August 2010 to buy a majority stake in Cairn India, a unit of Cairn Energy Plc, but the proposal is awaiting the Union Government nod.
The stake sale hit a roadblock after ONGC, which is Cairn India's partner in several blocks including the prolific Rajasthan fields, said it wants to alter the contract on royalty payments.
ONGC, by virtue of its stake in eight out of the 10 oil and gas properties held by Cairn India, 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.
However, analysts said that stock has been rising on expectations that the Government might approve the company's acquisition by Vedanta Resources.
“ONGC's new request to include royalties into cost petroleum is likely to be shot down by the Indian Cabinet, as this would 1) destroy value for Cairn India; 2) Discourage foreign oil companies from investing in India; and 3) hurt long-term energy security,” according to Mirae Asset analysts Mr Nipun Sharma and Mr Gordon Kwan. “Disrupting investment in domestic exploration and production amid the grave threat of supply disruption from the MENA region would be a politically disastrous move. At the current market price of Rs 344 a share, the market is pricing in the worst outcome for Cairn India in terms of royalties.”
Even as time is running out to clinch the issue, the Petroleum and Natural Gas Minister, Mr Jaipal Reddy, had said, “Cairn-Vedanta is a huge issue and the matter is being examined by Cabinet Committee on Economic Affairs. The committee is looking into the standoff over the excess royalty that ONGC pays on Cairn India's oilfields in Rajasthan.”
The Government was ready to give approval to the $9.6-billion Cairn-Vedanta deal provided the concerns of the State-run ONGC pertaining to royalty were addressed, he had added.
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