Market Report: Deadline extension sees Cairn and Vedanta drop
Friday 08 April 2011
Vedanta Resources' bid to take control of Cairn Energy's Indian unit suffered another blow yesterday as the deadline for the deal was extended by over a month, leaving both groups near the foot of the blue-chip index.
The planned sale by Cairn of up to 51 per cent of Cairn India to Vedanta was revealed back in August, but gaining approval from the Indian government has proven a struggle because of a dispute with the unit's partner in its Rajasthan oil and gas project, ONGC, over royalty payments.
Hopes were raised on Tuesday that a settlement could be near after Vedanta said it expected the green light to be given "within a few days". However, the miner's optimism proved misplaced and the Indian cabinet instead decided on Wednesday to refer the case to a panel of ministers.
Yesterday there was a new setback as the groups revealed they were pushing back the deal's deadline, which was originally next week, to 20 May. With traders saying that the new delay meant there was an increasing fear the sale could fall apart, Vedanta retreated 66p to 2,431p while Cairn was knocked back 10.5p to 445.9p, despite reassurances from various market voices.
"There is clearly a risk that the deal will not happen," said IG Index's Yusuf Heusen, "but I think if there was any truth behind it Cairn would be down a lot more and we would be seeing greater volumes."
Meanwhile, analysts from Collins Stewart said that even "in the event the deal collapses and Cairn is required to pay royalties in Rajasthan we estimate the downside is limited [for the oil and gas explorer] if long-term oil prices remain at or above $100 a barrel."
The FTSE 100 tracked back from Wednesday's seven-week high, dropping 33.76 points to 6,007.37, as the issuing of a tsunami warning for Japan prompted a late fall. The banking stocks were strong for most of the day after Portugal revealed it was seeking a bailout, but many had retreated by the end of the session with HSBC the sector's best performer with an advance of 6.8p to 667.2p.
Wednesday may have brought some rare cheer for the retailers thanks to Marks & Spencer's expectation-beating trading statement, but it was back to doom and gloom for the sector as both Halfords and Carpetright issued their second profit warnings in a matter of months.
The bicycle and in-car gadget chain fell 18.6p to 350p after saying it expected its profit before tax to come in at £127m instead of its previous prediction of £140m, while Carpetright slid back 39.5p to 632p as it warned its full-year numbers would be less than it had forecasted.
After gaining 6 per cent in the wake of its update, M&S pulled back 3.7p to 356.9p despite HSBC keeping the high-street institution's "overweight" rating. The broker said that "while the outlook for UK discretionary spending remains challenging in the short term, [it] is performing satisfactorily on a relative basis, an indication that progress made over the last two years is showing a degree of stickiness".
However, Barclays Capital reiterated its "underweight" rating, saying its "market share gains are real, but so are higher costs" and adding that "at this point other than the better sales, we haven't seen any improvement in operating expenses (or earnings growth) or returns".
For the second day running bwin.party took the FTSE 250's wooden spoon, with its dive of 24.4p to 142p, meaning it has now moved nearly 20 per cent lower in the last two sessions. The catalyst was the proposed new legislation on gambling in Germany, announced late on Wednesday, which the gaming group said "would make it impossible to offer a competitive product".
The announcement led Evolution Securities' James Hollins to cut his advice to "neutral" from "hold", saying that it could result in the group losing as much as 30 per cent of earnings. Meanwhile, Betfair – another company exposed to the country – shifted down 32p to 960p.
The second biggest faller was Talvivaara after the miner, which was driven back 40p to 540p, said its nickel production for the year would be below its previous expectations. Also in the red after updating the market was Hays, with the recruiter 5.4p behind at 114.1p despite its net fees increasing by over 15 per cent.
At the other end, Centamin Egypt crept up 0.9p to 147p after revealing production would be towards the lower end of its forecasts. The gold miner has been knocked back this year by the unrest in the North African country, but has now started to move away from its recent lows.
There was a massive surge of nearly 50 per cent for D1 Oils on the Alternative Investment Market, with the biofuels maker soaring up 1.05p to 3.13p as it revealed a trial of its oil – produced from the jatropha plant – is being undertaken by Siemens for an unnamed third party.
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