Petronas takes key stake in Cairn before £3.6bn Indian float

The state-owned Malaysian oil giant Petronas took a 10 per cent stake in Cairn Energy's Indian operations yesterday before the £3.6bn float of the business on the Mumbai stock exchange next month.

Petronas snapped up the shareholding in a private placing, paying Rs176.48-a-share. At that price, Cairn India is valued at $6.9bn (£3.6bn) - some $1.1bn more than the company indicated earlier this month.

The stake-building by Petronas was seen as a move to protect the company from a takeover when it lists. Petronas said it had no intention of increasing its stake and described the 10 per cent shareholding as "a long-term supportive investment".

Sir Bill Gammell, the chief executive of Cairn, said he was delighted to have gained such a backer before the flotation. Cairn Energy shares rose 3 per cent on news of the placing. The group's oil fields in the Rajasthan area of northern India represent the vast bulk of its assets.

Cairn is selling off 30.5 per cent of its Indian business and retaining the rest. A total of 12 per cent of the company was sold in the private placing, raising a total of $822m. This means only 18 per cent of the business will be available for next month's public offer, which is likely to be split equally between Indian retail investors and institutions.

The chief executive of Cairn India, an Indian investment banker called Rahul Dhir, will receive share options worth some £9m, of which £6m come without any performance conditions attached. His chief operating officer, Lawrence Smyth, will also cash in although he will net a more modest £2m.

Cairn's Rajasthan fields, which it bought from Shell five years ago, contain an estimated 3.6 billion barrels of oil, of which it expects to recover at least 1 billion.

In September, the group disclosed that the start of production from its main field had been delayed by up to a year. The company had been due to start pumping oil from the Mangala field, the biggest in the Rajasthan region, in late 2008 but this has now been put back to 2009.