Every evening, 45-year-old T.V. Sandeep Kumar Reddy — an engineering graduate from the University of Michigan — spends hours in front of his computer following project bids and their valuations and keenly tracking competition. Sandeep, a second-generation entrepreneur who inherited Hyderabad-based infrastructure company Gayatri Projects from his father T. Subbarami Reddy — a Rajya Sabha MP, who is also credited with building the world's largest masonry dam Nagarjuna Sagar in 1967 — has big plans for the Rs 1,248-crore company, which is currently executing projects worth Rs 11,900 crore including a 2,640-MW power plant in Nellore district, with a project cost of Rs 5,151 crore. "The next 10 years is going to be a boom time for infrastructure companies such as ours," says Sandeep, managing director of Gayatri Projects.Across the city, N. Seethaiah, managing director of Madhucon Group with an order book of Rs 6,415 crore, is confident of becoming a global player. One of its group companies, PT Madhucon Indonesia, has been granted permission to mine 97,900 acres at two mines in Indonesia. With 2,400 million tonnes of coal reserves, Madhucon expects to be a big player in the thermal power sector. It is building a 1,930-MW thermal power plant near the Krishnapatnam Port in Nellore at a cost of Rs 10,500 crore.Reddy and Seethaiah are not the only ones keen on taking their infrastructure firms to the next level. Across Andhra Pradesh — and even Chennai — there are many companies waiting to break out on the national scene. It all started during the Green Revolution in the 1970s, when Andhra Pradesh gave rise to many contractors to build irrigation projects. The project execution skills honed by some of these contractors gave birth a number of infrastructure companies from the state.Two of these companies — GMR and GVK — went on to the world stage by bidding and managing power projects and airports. While GMR Infrastructure, the listed entity of the $3-billion GMR Group, had completed six large road projects in Tamil Nadu, it came on to the national scene when it bid and won both the Delhi and Hyderabad airport projects in 2006-07. While Delhi airport's cost of development was Rs 12,700 crore, Hyderabad cost Rs 2,470 crore. In 2008, it won bids to develop the Sabiha Gokcen airport in Istanbul, Turkey for Rs 3,153 crore. It is also modernising the Male international airport for about $511 million. Thanks to the airport projects, GMR Infrastructure rose from Rs 34 crore in 2007 to Rs 727 crore in 2011.Similarly, the $2-billion GVK Group hit the headlines when its listed company GVK Power and Infrastructure won the bid to develop the Mumbai airport in 2006 for Rs 8,760 crore and the Bangalore airport for Rs 1,200 crore in 2010. The result: its turnover increased from Rs 17 crore in 2007 to Rs 123 crore in 2011.Inspired by the success of these two firms, many other infrastructure companies in Andhra Pradesh are aspiring to play on the national and global stage. What's working in their favour is the fact that GVK and GMR grew from within their ranks. They might have gained national importance, but in terms of size, the group companies of Andhra-based infrastructure firms such as the $1-billion Gayatri Projects and the $2-billion IVRCL are similar to them.Over the past two decades, most of these companies have grown multi-fold thanks to a combination of hard work, opportunities and contacts with local politicians and bureaucrats. However, they have continued to be region-based. It is only now that they are expanding — bidding for contracts across the country.Take E. Sudhir Reddy, chairman of the Rs 5,561-crore IVRCL, which started in 1991. Its fortunes changed in 2005 when it bagged a Rs 600-crore project to build a desalination plant in Chennai. By 2011, its order book swelled to about Rs 24,000 crore. It is now building Phase 3 of the Indira Sagar dam on the Narmada in Madhya Pradesh and also the Indore-Jhabua road for $270 million.Currently, IVRCL is building several national and state highway projects. "Roads have become a gold rush where everybody is dreaming of entering," says Reddy. The key to success, he says, is better quality and faster execution. High LeverageA PricewaterhouseCoopers (PwC) report on infrastructure says that the 800 infrastructure companies in the country have captured only 30 per cent of the market. Undoubtedly, there is huge scope for growth, attracting an ever-increasing number of players. G.R.K. Reddy, who started a stock broking business 20 years ago, is one such player. A few years into the business, he realised that infrastructure was his true calling. To become a well-known contractor, he had to take risks including building a windmill farm in Naxal-affected Tadipatri area of Andhra Pradesh in 1996. "We were a mere executor of plans for our clients and to generate cash we had to take big risks," says Reddy, chairman of the Chennai-based Marg Group. The risk paid off and his small company had surplus cash of Rs 4 crore in 1999. Today, Marg Constructions has revenues of close to Rs 1,000 crore and has become a developer and contractor with interests in airports, ports, industrial parks and large townships.break-page-breakThe Marg Group is increasing the capacity of the Karaikal port to 21 million tonnes per annum at a cost of Rs 1,500 crore in the second phase. The first phase was built for Rs 700 crore. The company has also won bids to manage and build the Bellary and Bijapur airports on a build, operate, transfer (BOT) basis for 90 years.But Reddy's dream project is the 1,000-acre Swarnabhoomi Township on the outskirts of Chennai, which he says "will replace existing cities". The project costs Rs 700 crore, of which Rs 406 crore is debt-funded.Such huge investments have impacted Marg's cash flow, making it negative over the past five years. However, since last year, its assets have started yielding returns. Cash generated from operating activity now stands at Rs 115 crore. MARKET CAP GMR Infrastructure: Rs 9,964.63 croreGVK Power & Infra.: Rs 2,384.61 croreRamky Infrastructure: Rs 1,177.70 croreIVRCL: Rs 935.87 croreMadhucon Projects: Rs 522.47 croreMarg: Rs 302.09 croreGayatri Projects: Rs 166.65 crore Source: AceEquity In fact, that is something common to most of these companies. They are all highly leveraged. "Over the past three years, these upcoming groups have bid for plenty of projects and have over-leveraged themselves," says Sneha Rungta, senior analyst at Sharekhan Securities in Mumbai. She says that these companies have to balance their business portfolio between EPC (engineering, procurement and construction) contracts — which bring in immediate cash —and BOT projects which bring in steady revenue after completion of the project in three years. "A debt-to-equity ratio of 4:1 is healthy for an infrastructure firm, they just need to manage their working capital cycle and find ways to finance their new projects," says Sankara Ayyathurai, founder, SS Halcyon Investment Advisory.Project delays could pull firms down. Projects are delayed when the legal clearances are not obtained on time. Deepak Purswani, senior analyst at ICICI Securities, says that companies need to both control materials and develop projects. The margins in this business can be as low as 5 per cent, and so one has to either diversify to hedge against the losses or acquire enough knowledge to own and execute projects.Hyderabad's Ramky Infrastructure is heeding Purswani's advice. "I run my business to get cash first and then spread my risks," says Ayodhya Rami Reddy, chairman of the $1.5-billion Ramky Group of companies. "A company needs more assets that yield money in the long-run than be dependent on businesses that are subject to working capital delays," says Reddy.Ramky has an order book of Rs 10,000 crore and has expanded to Africa and the Middle East. Apart from building large residential projects such as the Rs 400-crore Ramky Towers in Hyderabad, it is currently building five road projects for Rs 400 crore. Rami Reddy, however has placed his bet on waste management and has set up a separate company called Ramky Enviro Engineers. But it is facing competition from politicians and local contractors who do not want the business of waste management to be organised by a corporate. "That's why my business is also focused on global projects for revenues and I want 50 per cent of these revenues to come from abroad in a few years," he says. He is working on a Rs 380-crore order to build a 1,000 acre special economic zone in Libreville, the capital of western African country Gabon.Although Rami Reddy has tasted success, he has his own share of troubles. Recently, the CBI raided the premises of Ramky Infrastructure regarding projects that were offered to the firm by the Andhra government between 2004 and 2009, giving substance to whispers of a nexus between infrastructure firms and politicians.Business Methodology The business models of these companies are similar: create a special purpose vehicle (SPV) and execute projects on a BOT or BOOT (build, own, operate and transfer) basis individually or in partnership with the government or another firm. If 51 per cent of the SPV is owned by the parent company, then the SPV's loans get reflected in the parent's balance sheet. These SPVs, however, become operationally profitable only from the third year of operation. Ramky has 11 SPVs, while Gayatri Projects and Madhucon have 10 each.The second business model is EPC contracts: the companies work on annuity basis, which delivers cash every six months. "These firms will eventually want to go for the BOOT route. For that they need good project management processes," says Neeraj Bansal, director of advisory business at KPMG. He adds that these are promoter-run companies that need a strong second line of management to survive in the long run.And the long-run is what these firms are aiming at. "We don't share the same DNA (as GMR and GVK), but we have the skills to become large players," says Rami Reddy. Agrees Sandeep Reddy: "We are already national players; we just have tonnes of work to focus on before we build a brand." vishal(dot)krishna(at)abp(dot)in(This story was published in Businessworld Issue Dated 17-10-2011)
Read More
The sale of 135 acres of land of the now defunct auto company PAL-Peugeot has had an interesting course. In a recent auction of the company's land in Mumbai's distant suburb of Kalyan ordered by the Bombay High Court-appointed court receiver, Gammon India offered the highest bid of Rs 601 crore. Neptune Group, which offered Rs 600 crore, was pipped at the post. The Bombay High Court is yet to confirm the sale, but what is significant is that in the last round of bidding in April 2008, the highest price offered was Rs 676 crore by a subsidiary of Indiabulls Real Estate. Gammon then was No.2 with a bid of Rs 675 crore. The substantially lower price offered in the recent round of bidding indicates that land prices after the post-recession revival have still not touched the highs seen during the boom period.Interestingly, Indiabulls's offer of Rs 676 crore did not go through because the court receiver had fixed a reserve price of Rs 1,650 crore. The ridiculously high reserve price — equivalent to Rs 2,855 per sq. ft for kutcha (undeveloped) land — is a reflection of the staggering expectations that prevailed during the boom madness. With no reserve price fixed in this round, it is likely that the court will accept the sale terms. "The price in this auction is more realistic and will allow Gammon to make some margin of profit after development," Naresh Nadkarni, chief investment officer at HDFC Property Ventures, told Businessworld.There are interesting pointers in this for the general property market, and for the pumped- up residential market in particular. Despite volatility in the stockmarkets, and the continuing consumer resistance, property prices have steadily climbed through 2010. In fact, in many urban markets, they are now close to the peak 2008 rates. Simultaneously, we have seen a drying up of demand and builders saddled with increasing inventories.This is supported by the data collated by property market tracking agency Liases Foras. In Mumbai, the average cost of a flat has climbed from Rs 64 lakh in September 2009 to Rs 88 lakh in September 2010, and the average unit price rose from Rs 5,743 per sq. ft to Rs 8,887 per sq. ft in September 2010. In response, total stock sold in Mumbai declined 17.6 per cent to Rs 8,375 crore from Rs 10,168 crore in September 2009. Net sales in the city, too, fell sharply to 12,170 units in September 2010 from 17,400 units a year ago.Most builders concede consumer resistance is building up. "Demand has dried up in recent months," says Subodh Runwal, director of Runwal Group. Consumers believe prices have peaked and are likely to come down. A survey among potential home buyers by real estate website Makaan.com showed that 55 per cent expected residential property prices to fall by 20 per cent or more in 2011. This perception, coupled with an increase in home loan interest rates, has led to buyers postponing buying decisions."Pre-sales and underwriting trends are contributing substantially to the existing sales volumes. If we exclude such projects, the market looks extremely risky now," says Pankaj Kapoor, chief executive officer of Liases Foras.So far, builders had been clinging on to the price line, despite the build-up of unsold stock. Speculation in the industry is that the steady cash flow from private equity investors and earlier advance sales helped cushion the pressure on builders to reduce prices. These sources seem to have dried up now and we are seeing the high price points finally cracking.Builders often plead that they have little margin for reducing prices since the cost of land is abominably high. With land costs beginning to decline as the PAL-Peugeot sale indicates, builders hopefully will see reason and offer more affordable prices to home buyers. (This story was published in Businessworld Issue Dated 10-01-2011)
Read More
Non-bank finance companies categorised as infrastructure finance firms will be now allowed to issue long-term bonds to foreign institutional investors, market regulator Securities and Exchange Board of India (Sebi) said on Friday.The total cap for foreign investors to buy corporate bonds under the long-term infrastructure category was raised by $20 billion to $25 billion in February.It had been earlier reported that the government is in talks with the Reserve Bank of India (RBI) and stock market regulator to allow infrastructure finance companies to issue bonds to foreign investors, four sources with direct knowledge told Reuters on Wednesday.Allowing foreign investors to buy such bonds is intended to increase funding available for big-ticket projects such as roads and power plants in India, where inadequate infrastructure drives inflation and acts as a brake on growth.India requires infrastructure investment of $1 trillion over the five years beginning April 2012, the government estimates.In its budget in February, the government raised by an additional $20 billion, to $25 billion, the limit on foreign institutional investment in corporate bonds of duration longer than five years issued by companies in the sector.Now, New Delhi is contemplating expanding the definition of eligible issuers to include infrastructure finance firms."There is a suggestion from the ministry of finance for relaxing the definition of infrastructure companies so that infrastructure finance companies can be included," one of the officials told Reuters.So far, just $500 million to $600 million of the existing quota for foreign institutions has been used up by FIIs due to the restriction, dealers said. Part of the sluggish interest results from lack of supply from top-rated issuers, they said."How do you raise money in this choppy market? This is a big question. The sector requires huge funds. So we have suggested any company registered as an infrastructure finance company should be allowed to issue such bonds," said a second official.Many infrastructure finance companies, including Power Finance Corp, Rural Electrification Corp and Indian Railway Finance Corp, are frequent issuers of bonds but foreign institutions are not allowed to buy such bonds under current rules. (Reuters)
Read More
Secondary steel producers have sought from the Centre 'deemed credit' facility on scrap sourced locally from non-excisable units, saying it will curb "large scale duty evasion" and boost government revenue."We have urged the Centre to allow induction furnace owners to claim deemed credit on scrap bought domestically from units which do not fall under the purview of Central Excise," All India Induction Furnaces Association (AIIFA) President, K K Garg said."If deemed credit facility is allowed, it will plug the leakage of revenue and ensure prevention of malpractice, prevalent in the trade and industry," he said.AIIFA has written to Finance Minister Pranab Mukherjee for restarting the Deemed Credit facility for the secondary steel makers.Garg said that as per rule 13 of Cenvat Credit Rules 2004, the Centre has the power to notify goods for deemed credit. Earlier, till 1987, deemed credit facility was available on iron and steel products.However, this facility was suspended after Centre received complaints regarding its misuse.Various industries, outside the purview of central excise, like bicycle, sewing machines, SSI engineering and units, located in tax free zones, produce scrap out of steel on which excise duty is already paid.Indigenous steel-melting scrap sourced from non-excisable units constitutes 40 per cent of total input requirement for country's induction furnace owners."The problem arises as scrap sellers could not produce excise documents while selling to us. As a result of which induction melting furnace units are not able to get any duty credit on steel products made out of this type of scarp," he said. As the industry procures scrap without proper bills, it sells steel ingots made out of this scrap while adopting "illegal means", including not paying excise duty on these goods by hoodwinking central excise authorities, according to industry experts."Once we are allowed deemed credit on scrap, excise revenue of the Centre will increase and malpractice prevalent in trade will also be curbed," he said.The industry suggested that deemed credit be capped in order to prevent its misuse.There are about 950 induction furnace owners in the country catering to wide range of industry verticals for iron and steel requirements.(PTI)
Read More
India's desire to spend billions of dollars on overseas infrastructure could undermine efforts to ease major domestic port congestion that has hindered trade in Asia's third largest economy.New Delhi plans to create a state-owned firm, India Ports Global, dedicated to investing in ports overseas as it looks to catch up with rival China in securing global supply chains -- from mines and railways to ports and ships.India's aim to spread its influence beyond its shores and lock in much needed coal, crude oil and other commodities could limit the amount of funding available to modernize and expand its domestic ports."At the moment, Indian ports suffer major congestion that is impeding trade and affecting its economy," said Neil Davidson, a leading port expert at Drewry consultants."My concern is that this international expansion plan could distract them from making the necessary investment and improvements in Indian ports."Infrastructure woes such as congestion at ports and roads in the world's second most populous nation shave an estimated 1-2 percentage points off the country's GDP growth, according to the finance ministry, as construction has failed to keep pace with India's rapid economic expansion.New Delhi wants to raise at least 70 billion rupees ($1.5 billion) this fiscal year as initial funding for India Ports Global, Shipping Secretary K. Mohandas told Reuters.Around $453 million will come from at least three of the country's 13 major state-run ports, reducing reserves that could be used to fund their own domestic expansion plans.Proposed government funding for India Ports Global is not that much less than what New Delhi has budgeted for port projects at home.The government has earmarked $12.2 billion for domestic port projects over the next six years, or about $2 billion on an annual basis. New Delhi wants the bulk of funding to come from the issuing of tax-free bonds and private investors.The government, which has ambitiously set the end of this year for Indian Ports Global to begin operating, denied the firm would come at the expense of its own domestic ports."We have a definite plan for Indian ports and we are going ahead with that plan," Mohandas said. "This is definitely not at the cost of Indian ports."Several details of the new company, including who will manage it and how investment projects will be picked, still need to be worked out and industry officials expect some delays -- especially with New Delhi busy grappling with corruption scandals and high inflation."It's a good idea, but India is not like China where an idea becomes a reality overnight. Things need to be debated and that takes time," said a senior India port executive, who wished not to be named.Infrastructure PlanOne of the main aims for India Ports Global will be to invest in tandem with other state-owned companies making forays overseas, providing the infrastructure link to their projects.Coal India, ONGC, Steel Authority of India, and others are spending heavily in Southeast Asia, Australia and Africa to secure the natural resources needed to fuel India's expanding economy."If we want to continue to be a growing economy, we need to think longer term about our supply lines," said Anil Devli, chief executive of India Shipowners Association."We need to have a strategy to make sure we have certain interests at certain ports. We should be looking at Indonesia, Australia, Vietnam and Africa since we have lots of investment there already."The Indian company, however, will face fierce competition from not only Chinese competitors but also industry leaders PSA International, Singapore-listed Hutchison Port Holdings and Dubai's DP World."If you want to play the international game, you have to have the money to invest and prospect. You cannot do this half heartedly and there are many risks involved," said Drewry's Davidson.Balancing ActWhether India, a country plagued with endemic corruption, can successfully manage its long-term overseas ambitions with its domestic needs remains to be seen.India's port construction has suffered from chronic funding shortages, with the private sector unwilling to invest in expansion and the government unable to meet the rising demand for berths.That has forced Vizag, Mormugao and many other Indian ports to operate above capacity, creating long queues at the docks with vessels waiting as long as two weeks to unload their cargo.Turn around time for ships typically takes three times longer in India than in Singapore, home to some of the world's most efficient ports.And traffic is only expected to get worse, growing by over 60 percent to more than 1 billion tonnes by 2017 from 630 million tonnes currently, according to the shipping ministry.To meet this surge in traffic, investment of nearly $30 billion will be needed this decade to modernize and expand the 13 major ports, the ministry said.New Delhi wants at least 30 percent of the funding to be through joint ventures with private investors.DP World, Maersk and other majors have repeatedly expressed interest in expanding their operations in India, but actual investment has remained limited because of bureaucratic red tape, problems with land acquisition and environmental clearances.DP World invested $400 million for a transhipment terminal in India's Cochin Port that could only be partly opened in February since the government had not yet completed dredging work nor passed legislation waiving a requirement to use only India-flagged vessels in the area.The Planning Commission, an influential advisory body, has predicted the ports sector will miss its funding targets by more than half for the government's current five-year plan."India needs to welcome expertise, investment and facilitate instead of regulate," said Anil Singh, managing director of DP World in India."The gap is too long between inception and construction of port projects. So much needs to be done to build India's port sector."(Reuters)
Read More
Tata Power, part of the diversified Tata group, is looking for power projects outside the country to sustain its growth, chairman Ratan Tata said on Wednesday.The overseas investment push by Indian companies, often seen as the assertiveness of a rising power, is increasingly spurred by difficulty finding attractive opportunities in Asia's third-largest economy."We are also tendering quite actively on power projects outside India, where there is great demand, for growth," Tata told an annual meeting of shareholders.Tata did not elaborate on the firm's overseas plans.Tata Power is developing a 114 MW hydro power project in the Himalayan nation of Bhutan and has bought a 50% equity stake in a planned hydro power project in Nepal.In 2010, it had won a bid for a 240 MW geothermal project in Indonesia in consortium with Australia's Origin Energy and Indonesia's PT Supraco.Indian power developers are grappling with several problems in setting up new projects, such as delays in securing environmental clearances, farmers' opposition to land acquisitions and the soaring prices of imported coal.Tata said the government needed to give the utmost priority to looking into the problems of the power sector."The government wants the private sector to play a major role in the (power) sector. Unless land is made available, we will not be able to play our role."Tata said he expected the federal government to review the tariff structure for Ultra Mega Power Projects (UMPP) -- those with capacity of about 4,000 MW -- as coal prices have risen.Australia's thermal coal prices, a benchmark for Asia, were flat at just over $120 per tonne in the week ending Tuesday, as weak demand kept trading thin.Earlier on Wednesday, Citi cut Tata Power's target price to Rs. 1,290 from Rs. 1,462 and maintained a ‘buy´ rating on the back of higher input costs at its UMPP at Mundra in the western state of Gujarat.In the June quarter, the utility posted 35% higher net profit from the previous year, at Rs. 419 crore.Also in June, it raised $334 million from a perpetual bond issue besides having raised another $450 million in April to fund its capex.The company's stock, which is valued by the market at $5.7 billion, closed down Rs. 4.42% at Rs. 1,038.30, underperforming the benchmark index , which ended down 1.29%, taking its cue from Asian peers.(Reuters)
Read More
Petrol prices in India are costlier than the US but cheaper than European countries, Minister of State for Petroleum and Natural Gas R P N Singh said on Tuesday.Petrol in Delhi is priced at Rs 63.70 a litre, while the same in USA is priced at Rs 42.82 per litre. The price in India is more than any of its neighbours -- Pakistan (Rs 41.81 a litre), Sri Lanka (Rs 50.30 per litre), Bangladesh (Rs 44.80 a litre) and Nepal (Rs 63.24 per litre).But the rate in Delhi is cheaper than France (Rs 94.97 per litre), Germany (Rs 95.99 a litre), the United Kingdom (Rs 96.39 per litre) and Italy (Rs 96.79 a litre), he said in a written reply to a question in the Rajya Sabha here.Higher rates for petrol in India are due to higher incidence of taxes. Without taxes, petrol would cost Rs 23.37 per litre in Delhi.The diesel price in Delhi, at Rs 41.29 per litre, is cheaper than in the US and European nations, but costlier than Sri Lanka and Bangladesh. Without taxes, diesel would cost Rs 24.90 a litre.The current price of diesel in Delhi is Rs 4.97 a litre below its actual cost.In the US, diesel is priced at Rs 45.84 a litre, while in France, it costs Rs 69.87 per litre. In Germany, diesel costs Rs 72.54 a litre, while it is priced at Rs 82.93 a litre in the UK and Rs 74 per litre in Italy.In the neighbourhood, diesel is priced at Rs 46.70 a litre in Pakistan, Rs 45.38 a litre in Nepal, Rs 34.37 a litre in Sri Lanka and Rs 27.32 per litre in Bangladesh.Singh said the PDS kerosene price of Rs 14.83 a litre in Delhi was the lowest in the region, with the cooking fuel priced at Rs 44.06 per litre in Pakistan, Rs 24.67 in Sri Lanka, Rs 27.32 in Bangladesh and Rs 45.38 a litre in Nepal.Similarly, the domestic LPG rate of Rs 399 per 14.2-kg cylinder is lower than the price tag of Rs 757.04 in Pakistan, Rs 863.40 in Sri Lanka, Rs 469.24 in Bangladesh and Rs 819.60 in Nepal.The price of kerosene is subsidised by Rs 23.74 a litre and LPG by Rs 247 per cylinder in India.Singh said oil marketing companies pay a Trade Parity Price (TPP) for the purchase of petrol/diesel and Import Parity Price (IPP) for the purchase of PDS kerosene and domestic LPG.(PTI)
Read More
UK's Cairn Energy Plc today said it wants Cairn India to accept all the government's conditions and agree to pay royalty and cess on the Rajasthan oilfields so as to facilitate its stake sale to Vedanta Resources.Cairn Energy, which owns a 52.11 per cent stake in Cairn India, "has voted to accept (government) conditions", the company said in a press statement.The Edinburgh-based firm, which is selling a 40 per cent stake in Cairn India to Vedanta, has till now maintained that forcing its Indian unit to pay royalty and cess on the mainstay Rajasthan oil block was against the signed contract and would hurt minority shareholders' interest."Two of the government of India conditions— cess and royalty payable— are currently with Cairn India shareholders for approval, Cairn has voted to accept these conditions, with voting results due on September 14," the statement said.Together with Vedanta's 28.5% shareholding, Cairn Energy has enough votes to get any proposal passed by its shareholders, ignoring the resolution passed by the Cairn India board in February opposing the value demolishing preconditions.Minority shareholders at Cairn India's AGM in Mumbai last week had booed Cairn Energy for changing track to get $6.02 billion from the stake sale to Vedanta. Cairn Energy had previously said it would rather call off the deal than force Cairn India to accept these conditions.Cairn India had on July 26 stated that its April-June quarter net profit would halve to Rs 1,435 crore if it was asked to share royalty on the Rajasthan crude oil.The company currently does not pay any royalty on its 70% interest in the Rajasthan fields. The royalty, as per the contract, is paid by state-owned ONGC, which got a 30% stake in the 6.5 billion barrel field for free.The Cabinet Committee on Economic Affairs (CCEA) on June 27 gave consent to the Cairn-Vedanta deal, subject to Cairn or its successor agreeing to charge or deduct the royalty paid by ONGC from the revenues earned from the sale of oil before the profits are split between partners.This cost-recovery of royalty will lower Cairn India's profitability.Also, the CCEA said Cairn India must pay a Rs 2,500 per tonne cess on its 70% share of oil production. Cairn maintains that cess, like royalty, is a liability of ONGC and had initiated arbitration against the government on being forced to pay cess.Cairn Energy, in the statement, said, "Sale of 40% shareholding in Cairn India to Vedanta (will) be completed in two stages. The first tranche of 10%, which realised about $1.4 billion (was) completed (in) July, 2011."The second tranche of 30%, approved by the government of India (GoI) in June, subject to certain conditions, will realise about $4 billion," it said.Cairn Energy said the Mangala field in the Rajasthan block currently produces 125,000 barrels of oil per day.Development of Bhagyam, the second biggest oilfield in the block after Mangala, was on track and is scheduled to commence production in the fourth quarter of 2011.Cairn India, it said, had net cash of $1.048 billion, comprising $1.452 billion in cash and $404 million in debt."Cairn (Energy) is encouraged that the Vedanta transaction is moving toward completion. Following approval from the government of India, all parties are now working to satisfy the consents and conditions to complete the sale to Vedanta as soon as possible," company CEO Simon Thomson said."The sale of Cairn Energy's 40% stake will allow a return of substantial funds to shareholders and will also provide the group with the balance sheet strength and financial flexibility to explore new opportunities in line with its consistent strategy of seeking transformational growth," Thomson added.(PTI)
Read More
