Vedanta plans $1.5 billion bond issue to fund Cairn deal

Vedanta Resources will issue $1.5 billion bonds to help it finance its $9.6 billion Cairn India deal, a move, experts say, shows the company is close to complete the deal, now pending for over 10 months.

Vedanta will start a global roadshow on Monday and expects the funds to replace its earlier short-term bridge loan.

“We’ll raise $3.5 billion from bank loans, $1 billion from equities and this bond issue,” Vedanta Resources chief financial officer, Tarun Jain told DNA, adding that this is a part of the $6 billion deal financing Vedanta has in place to acquire Indian assets of Scottish oil & gas explorer, Cairn Energy.

Barclays, Citigroup, Credit Suisse, Royal Bank of Scotland Group and Standard Chartered are managing the bond issue.

Vedanta has already tightened its grip over Cairn India after acquiring an 18.5% stake in it, including 10.4% stake from Malaysia’s Petronas for $1.5 billion and 8.1% stake through an open offer by subsidiary, Sesa Goa.

The company has been left frustrated as New Delhi dithers on approving the remaining control of 40% stake in the Rajasthan-focused oil explorer.

“Vedanta expects to use the proceeds of the offering for, among other things, to finance a portion of the purchase price for the acquisition and to pay related fees and expenses, which will result in a cancellation of commitments under a bridge facility for a total aggregate amount of up to $1.5 billion.,” Vedanta informed the LSE on Friday.

“(Today’s news) shows that the company is closest than ever to close the deal,” a Mumbai-based analyst at a foreign brokerage said on the condition of anonymity.

On Thursday, Cairn Energy extended the deadline for completing the deal without setting any new one ahead of the May 20 deadline expiry. The company first expected to close the deal by March 15 - after announcing the deal on August 16 last year - and later hoped to close the transaction by April 20.

Not surprisingly, Vedanta is still unsure if the group of ministers, which meets on May 27, will approve of the deal, as the company statement said that in case the acquisition failed to get government nod, it will use the proceeds to “fund capital expenditure, repay debt and for other general corporate purposes.”

Cairn India is locked in a messy royalty dispute with state-controlled Oil and Natural Gas Corporation (ONGC) and New Delhi is debating if the resolution of the issue should be set as a precursor to the country’s biggest cross-border acquisition.

ONGC, which pays 100% royalty on production from Cairn’s Rajasthan block to the Rajasthan government despite holding only 30% stake, wants the agreement to be tweaked. Both Cairn and Vedanta strongly disagree with the suggestion, saying any change in financials would make the deal less appealing for their investors.