Cairn India merges with Vedanta; companies to retain brand identity

The merger of cash-rich oil producer Cairn India into its debt-ridden parent Vedanta Ltd has become operational starting Tuesday.

"This merger consolidates Vedanta's position as one of the world's largest diversified natural resources companies, with world-class, low-cost assets in metals and mining and oil and gas," the companies said in a joint statement a joint statement by the two firms said.

After absorbing its cash-rich subsidiary, Vedanta will have a larger pro forma market cap of USD 15.6 billion and higher free float of 49.9 percent.

Speaking to CNBC-TV18, Anil Agarwal Chairman of Vedanta said, “Putting everything together would make a strong balance sheet which will help us to take the company at a different level.” He was hopeful that the combined entity will generate good cash flow.

He also added that the company will be investing almost USD 10 billion to further expand capacity.

“We produce almost 30 percent oil of the country and we want government to look at us to produce 50 percent. We need lot of investment for that,” said Agarwal.

The two companies announced plans of the merger in June 2016, which would give the metals and mining company Vedanta access to the cash of Cairn India, helping it cut its debt.

In July last year, Vedanta had sweetened its merger proposal to win over minority shareholders like LIC.

Shareholders of Cairn India will get one equity share of Vedanta and four redeemable preference shares of face value Rs 10 and coupon 7.5 per cent, as against the proposal of one equity share and one preference share earlier.

April 27 has been set as record date for the share swap.

"Cairn India shareholders as on said Record Date, who will become shareholders of Vedanta, would also receive an interim dividend of Rs 17.70 per equity share as approved by the Board of Vedanta on March 30, 2017," the statement said.

Also, no shares will be issued to Vedanta or any of its subsidiaries for their shareholding in Cairn India.

Vedanta will arrange for a third-party facility enabling a cash exit for Redeemable Preference Share (RPS) holders at par within 30 days from issuance, the statement said.

(With inputs from PTI)

Below is the excerpt of the interview.

Q: Can you take us through what the plan is next in terms of additional investment, in terms of expansion for the merged entity, what’s the plan?

A: This was our vision. It is a Indian company which is listed in India – Vedanta Limited. It also has a listing in USA. This is a company which is basically working on the metal resource of India. It has some asset in Africa also.

India is a very rich in minerals, it is very rich in hydrocarbons and we thought that putting everything together would make a strong balance sheet which will help us to take the company at a different level. As a combined identity it will have very strong result. It will have almost 20 percent natural resource of the country.

We produce almost 30 percent oil of the country and we want government to look at us to produce 50 percent. We need lot of investment for that. We will be investing almost USD 10 billion, about Rs 50000-60000 crore to further expand the capacity.

Q: The number that you said Rs 50000-60000 crore, would this be across the next 2-3 years – 2020 timeframe?

A: Yes around three years. It will help the company generate good cash flows, so we don’t have to go outside. Internal accruals will help us to make this investment.

As you have seen that we have given the government more than Rs 50000 crore this year as revenue tax, dividends. So, it is this sector which earns the largest money for the government, this sector generates maximum employment. So, I am just creating a model for our country.