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Vidya Ram

London, Aug. 12

London-listed Vedanta Resources has confirmed that it is in talks with Cairn Energy, a Scottish oil and gas exploration company, over the acquisition of a stake in a major Indian oil project.

“Discussions are ongoing and there can be no certainty the contemplated acquisition will occur or of the terms of any such acquisition,” Vedanta said of its talks with the Edinburgh-based Cairn Energy, which holds a 62 per cent stake in Cairn India.

Cairn India's Mangala oil field in Rajasthan is considered one of the country's most significant oil projects, with the potential to produce up to 240,000 barrels of oil a day. Cairn delivered its first packet to government-nominated MRPL on October 8 last year.

The Cairn stake-buy news caught the market off guard, with Vedanta shares tumbling 4.2 per cent in London on Thursday afternoon. “While locally a lot of investors want Vedanta to spend money on assets, I don't think the deal would add much value,” said Mr Jeremy Cave, analyst with MF Global, who argued that synergies would be minimal and that Cairn would be unlikely to settle for anything other than a sizable premium for those assets. “The company has a lot of growth opportunities, and a large pipeline.”

Vedanta produces aluminium, copper, zinc, lead, iron ore and commercial energy; and, besides India, operates in Zambia and Australia. Cairn Energy has exploration projects in Greenland, Albania, Bangladesh, Nepal and Tunisia.

The Mangala Project has attracted much interest, with Malaysian state-controlled oil firm Petroliam Nasional Berhad, or Petronas, building up a 12 per cent stake last year.

Analysts believe it unlikely that Cairn would want to reduce its stake in the Indian operation below 51 per cent. “They they will want to retain a controlling interest; so if any M&A interest came along, they would control that bid,” said Mr Richard Rose, an analyst at Oriel Securities in London.

More Stories on : Petroleum | Mergers & Acquisitions | Cairn India Ltd

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