Vedanta Resources is set to spend around $8bn-$8.5bn on a deal to buy a controlling stake in Cairn India, which operates the largest producing oilfield in the country's private sector.
The Indian miner, which has induced the ire of environmental and human rights groups over its plans to extract bauxite in the country's eastern Orissa state, is in advanced talks with Edinburgh-based Cairn Energy, which owns a controlling interest in Cairn India. Though pricing and the precise size of the stake are still being worked out, Cairn India was worth close to $13.8bn at the close in Mumbai on Thursday, leaving Cairn Energy's entire 62.4 per cent stake valued at around $8.6bn.
As The Independent revealed yesterday, Vedanta will pick up at least 51 per cent of the Indian business, leaving Cairn Energy with a minority interest in the country's fourth largest oil and gas company. No other bidders are believed to be involved and the transaction is expected to be made public early next week.
The two FTSE 100-listed companies confirmed talks on a potential sale on Thursday, but declined any further comment on the details last night.
Vedanta, which is expected to fund the acquisition with a combination of cash and debt, will need approval from the Indian government. The country's Petroleum Secretary, S Sundareshan, said companies that had signed a production sharing contract (PSC) with the Government for an oil exploration block would need approval in the event of the sale of a stake or of the company. "All PSCs have provisions for appropriate government approvals before such changes in ownership are made," he said.
Rahul Dhir, the former Merrill Lynch banker who was hired as Cairn India's chief executive in 2006, confirmed that Cairn Energy planned to maintain an interest, saying: "I don't think they are exiting the business – they are just selling [a] stake."
In London, Collins Stewart analysts said the deal could remove worries about the funding of Cairn Energy's exploration programme in offshore Greenland. Evolution Securities also raised the prospect of a special dividend for shareholders, a common practice among oil prospectors.
It said retaining an interest in the Indian company, whose main asset is located in the state of Rajasthan, will "enable Cairn to benefit" from positive developments at the business.