Vedanta plotting a move into oil with a £4bn stake in Cairn India

Vedanta resources, the Indian mining company, is set to move into the oil business within the next few days if it can finalise a deal for a majority stake in Cairn India.

The deal with Edinburgh-based Cairn Energy, which has a 62 per cent stake in the Indian subsidiary, could be announced as early as this morning. The two groups yesterday confirmed widely rumoured talks, cautioning that discussions were still at a preliminary stage. However, it is understood that the framework of a deal has been agreed and that the two groups are putting the last touches to the transaction.

Vedanta, the world's biggest zinc producer, is eager to develop into a fully blown resources group, and encourages the moniker, "the Indian BHP Billiton", referring to the Anglo-Australian giant that has interests in numerous commodities. The FTSE 100 group will have to pay more than £4bn for the stake. Cairn India, the fourth-largest oil and gas company in the country, was valued at $13.6bn (£8.75bn) at the close of trading in Mumbai on Wednesday, valuing Cairn Energy's stake at about $8.5bn (£5.5bn). Cairn India has sold off minority stakes in the past, but it is understood that Vedanta will take at least a 51 per cent stake in the group, if a deal is agreed.

A huge onshore oil find in the Rajasthan region helped to propel Cairn Energy, which is still chiefly an exploration group, from a small company to a major oil producer.

"It's a very good business and the main asset in Rajasthan is of a scale that would be of interest to even the bigger companies out there," said Richard Slape from Canaccord Genuity. "I would have thought that anybody wanting to purchase Cairn Energy's stake would want control of Cairn India, which would certainly mean they'd have to sell the majority of their interest, if not all of it."

Others argued that Cairn would be better off selling only a minority stake, saying that a large sale would make sense only if Cairn needed money to fund major exploration of its assets in Greenland. "I'd be slightly surprised if the deal was as big as 51 per cent, unless Cairn has an announcement to make on its assets in Greenland," said Sanjeev Bahl at Numis. "Cairn has been very bullish on the outlook for India." Sources close to Vedanta stressed that it wanted to become a major oil producer. The two groups have discussed a number of options, including an equity stake, asset purchases or a complete takeover, although buying a majority stake remains Vedanta's preferred move.

However, news that Cairn Energy is willing to sell a majority stake is likely to pique the interest of other major oil groups, and sources yesterday refused to rule out the possibility of an auction. Vedanta would fund any deal with a mixture of cash and debt. In May, it said that net income almost tripled to $602.3m (£390m) in the 12 months to the end of March, and two years ago it committed to spend $20bn (£13bn) on expansion plans. JP Morgan Cazenove is understood to be advising on the takeover deal.

Cairn Energy's shares increased by 1.8 per cent on news of the talks. Vedanta's shares fell 7.47 per cent as analysts said the group's balance sheet was already "relatively stretched".

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor