On 19 April, Anil Agarwal, chairman of London-listed Vedanta Resources, moved one small step closer to fulfilling his dream of getting a controlling stake in Cairn India, courtesy Malaysian oil and gas major Petronas, which held 14.94 per cent share in Cairn India. Petronas sold its entire stake of 283.4 million shares for about $2.1 million. Sesa Goa, Vedanta's subsidiary, picked up about 11 per cent while institutional investors bought the remaining 3.94 per cent."The stake sale has reduced free float of Cairn India stock, leaving only 26 per cent with minority investors. The development would improve the acceptance ratio to 77 per cent (53 per cent earlier) in Sesa Goa's open offer initiated on 11 April," says Ballabh Modani, analyst at Religare Capital Markets. (Cairn Energy is selling 51 per cent of Cairn India, of the 62.2 per cent it owns, to Vedanta for $9.6 billion, subject to government approvals.) WORK IN PROGRESSThe biggest oil and gas deal in India has followed a twisted route 16 AUGUST 2010: News of Vedanta Resources buying majority stake in Cairn India for $9.6 billion leaked17 AUGUST: Deal formally announced. Cairn India's partner in Rajasthan, ONGC, wants royalty to be taken as cost recoverable31 AUGUST: Ministry of Petroleum and Natural Gas asks Cairn Energy to get government clearance14 DECEMBER: Vedanta Resources shareholders approve the proposed acquisition in Cairn India11 JANUARY 2011: Prime Minister's Office asks the petroleum ministry to approve the deal by end of January — a month sooner than the ministry's deadline24 JANUARY: The petroleum ministry is ready to give an ‘inprinciple' approval if Vedanta agrees to 11 pre-conditions. Cairn disagrees with some14 MARCH: Green signal to the open offer by Sesa Goa, Vedanta's subsidiary in India, for Cairn India's minority shareholders6 APRIL: A Cabinet committee on the deal ends inconclusively. The case is referred to a group of ministers11 APRIL: Sesa Goa makes open offer19 APRIL: Vedanta buys 11 per cent in Cairn India from Petronas The transaction has also lowered Vedanta's acquisition cost as it bought the 11 per cent stake at Rs 331 a share when the open offer price is Rs 355. Another analyst points out that until the government gives its approval to the Cairn Energy-Vedanta deal, "the present buyout (of the Petronas stake) would not change the management structure of Cairn India. So, the company's valuation should not drop. We will have to see how things move when Vedanta Resources actually manages to take over the entire stake". Given that Vedanta's open offer for Cairn India shares had just opened, the sudden negotiated sale of the Petronas stake at a lower price has left some analysts foxed. "It would have been a better option financially to sell in the open market,'' points out one market watcher. Petronas sold its stake for Rs 24 less than the open offer price of Rs 355 — and also lost out on the tax benefits that come from selling during an open offer. Some analysts say that Cairn Energy may have persuaded Petronas to do the deal — the Malaysian company and Cairn Energy are partners in six operational blocks in Greenland (Petronas has a 10 per cent stake in these fields). Cairn Energy has told its shareholders that the money generated from the stake sale of Cairn India would be invested in these fields. Silver LiningThe Cairn Energy-Vedanta deal has been stuck since it was announced in late 2010, because it has failed to get government approval. The big hurdle is that ONGC, which is Cairn India's partner in the Barmer block, and the Ministry of Petroleum and Natural Gas, have been opposing the deal until issues of royalty and cess payments are resolved. ONGC wants Cairn Energy to pay a share of the royalty to the government (Cairn Energy says ONGC is supposed to pay the entire amount) before it gives its approval to the deal. The petroleum ministry wants the cess dispute — arbitration proceedings are taking place on this in London — resolved before clearing the deal. Government clearance is mandatory for this deal to happen because oil fields are sovereign assets, and the government needs to clear any change of ownership and management that takes place in any field. break-page-breakHowever, Vedanta recently found support from the finance ministry, which threw its weight behind the deal in the last meeting of the Cabinet Committee on Economic Affairs (CCEA) held on 6 April. Documents in possession of Businessworld reveal that the finance ministry's view at the meeting was that the disputes over subsidy and cess should be delinked from the issue of shareholding transfer in Cairn India. The Department of Economic Affairs' view was that differences lay in the interpretation of the production sharing contract (PSC) and could be resolved with the new shareholder after the deal was done. At the end of the meeting, the CCEA had two options for Cairn Energy. The first option was essentially the same as what the petroleum ministry wants — that the royalty is paid and the cess arbitration proceedings are dropped before the deal is approved. The second option was softer — it asked Cairn Energy to take prior consent from ONGC, and complete the deal with the proviso that the government would be free to take a decision on the royalty issue after the deal was fructified. (The implication being that both Cairn and Vedanta would agree to whatever decision the government took on the royalty issue.)The second option is, of course, more attractive for Cairn Energy. However, sources told BW that there is concern that the move would seem too favourable towards Cairn Energy and Vedanta in an atmosphere where the government is being criticised for being soft towards many businessmen. (CAIRN ENERGY) For the important Barmer block — which is Cairn India's richest asset so far, and which was given in a pre-NELP agreement — the finance ministry has asked the petroleum ministry and ONGC to consult the law ministry to check if the royalty and other disputes can be sorted out after the change in management. The finance ministry fears that such wranglings would affect the efforts being made to attract foreign direct investments. Petroleum ministry officials, on their part, cited a 7 March Delhi High Court judgement in a case in which Canada-listed Canoro Resources challenged the ministry over contract termination. The petroleum ministry had terminated the PSC with Canoro for Amguri oilfield in Assam after Canoro raised 95 million Canadian dollars in April 2009 through a mix of debt and equity sale to Barbados-based Mass Financial, without taking the Indian government's consent. The petroleum ministry said that the court validated that the government has a say if the management of the oil blocks — a sovereign asset — is changing hands. Moreover, solicitor general of India Gopal Subramanium has countered the finance ministry's advice of taking legal recourse as a non-feasible option. Some market watchers say that the just-concluded Vedanta-Petronas deal was supposed to have gone through last year when Cairn India's open offer got the government's approval. However, it was then shelved "after seeing the stiff resistance from the government to the deal". Now, with the finance ministry behind it, Vedanta Resources is perhaps more confident of moving forward. anilesh(dot)mahajan(at)abp(dot)in(This story was published in Businessworld Issue Dated 02-05-2011)
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The race is on to win the biggest highway project ever auctioned by the National Highway Authority of India (NHAI). The 555 km of highway that is to be widened to six lanes is part of the Golden Quadrilateral. The authority has calculated the cost of the BOT (build-own-transfer) project at a substantial Rs 5,387 crore. Of this the grant limit — that is the proportion that will be met by NHAI — is 10 per cent. To recover this investment, the successful bidder will get 26 years — that is the concession period, assuming the construction takes three years. Many bidders, however, feel that that the actual project cost will be well in excess of Rs 6,500 crore.The project does involve a lot of a work. It starts from Kishangarh (on NH-79 A) and ends at Ahmedabad (on NH 8) after traversing through Nasirabad, Bhilwara, Chittaurgarh, Udaipur and Himatnagar in Rajasthan and Gujarat (see map). It will ultimately be part of the Delhi-Mumbai route and is expected to see heavy traffic. It will include construction of two major bridges, 27 flyovers and five rail overbridges. The project will have eight toll plazas and a 23-km, six-lane, bypass in Udaipur which alone would cost around Rs 500 crore.Not surprisingly, the Kishangarh-Ahmedabad project has attracted tremendous interest from bidders. The project is also being closely monitored by the new minister C.P. Joshi, since it involves an important corridor in his state of Rajasthan.The project has many firsts to its credit. One, it is longest stretch to be auctioned on a BOT basis. Second is the level of foreign interest in a road project in India. Due to the sheer size of the project and the expertise required, almost all the 11 bidders who are in the fray have tied up with foreign partners. Many of these are entering development of the road sector in India for the first time. In fact, many smaller bidders could not manage to bid for the project since the project requires a fair amount of technical expertise as well as financial muscle.Companies in the fray are to submit the bids by 29 July and the project will go to either whoever asks for the lowest grant or — as many bidders argue — it may go to whoever offers the highest revenue share to NHAI. The authority has been expecting the project to fetch a high premium of close to Rs 300 crore."The road is also part of the Delhi-Mumbai industrial corridor. So besides passenger traffic, it is also expected to see a fair amount of freight movement," says one of the bidders. Also, this project is more sought after since it is a "prime corridor, and one most bidders would like to have under their belt". Another bidder says of the three main stretches of the corridor, it is only the Ahmedabad-Mumbai stretch which will attract very heavy traffic. Delhi-Kishangarh will attract somewhat less traffic and the third corridor, Kishangarh-Ahmedabad, is expected to be quite slow.But despite their interest, the bidders have some reservations about when the project will finally be allocated. There has been a marked slowdown in decision making in the government, especially in the roads and highways sector, they point out. In fact, four other projects that were recently auctioned by the NHAI have been awaiting clearance from the Cabinet Committee for Economic Affairs for over a month.(This story was published in Businessworld Issue Dated 08-08-2011)
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The $ 6.6-billion, Taiwan-based Delta Electronics is investing $15 million to set up a manufacturing facility for solar inverters at the SIPCOT Sriperumbudur Hi-Tech SEZ, near Chennai. The plant is expected to be operational by mid-2012. Close to 70 per cent of the output will be exported, while the balance will meet the rising demand for solar inverters in India. Says Bruce CH Cheng, chairman, Delta Electronics: "With global warming becoming a major issue across the world, this is a huge opportunity for us." With this plant, the total investment of Delta Electronics in India will exceed $ 60 million. The Chennai plant is the fourth plant of Delta Electronics in India after those at Gurgaon, Pondicherry and Rudrapur in Uttarakhand. These plants produce telecom power systems, uninterrupted power systems and display solutions. Cheng who is a votary of green buildings is bullish about the Indian operation of Delta. Says Cheng: "The rapid growth of the Indian economy means it will need solar solutions to raise power capacity." Delta which has been in India for close to a decade is looking to ramp u[ its operations here. During the last fiscal, the Indian operations had revenues of $ 154 million, which is expected to touch $ 200 million this year. The solar inverter is the heart of the photovoltaic (PV) system. The grid-tied inverter will not operate when they do not detect the presence of the grid. It contains special circuitry to match the voltage and frequency of the grid. These inverters shut down automatically upon loss of utility supply, for safety reasons. These will come in handy as India is looking to have a 20,000 mw solar power capacity under the Jawaharlal Nehru National Solar Mission.
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State-run explorer Oil & Natural Gas Corp reported a 12 percent rise in quarterly profit, missing street estimates as higher subsidy payments offset gains from a rise in crude oil and gas prices.ONGC said net profit for its fiscal first quarter rose to 40.95 billion rupees ($929 million), compared with 36.61 billion rupees a year earlier.A Reuters poll of ten brokerages had on average expected net profit of 42.6 billion rupees for the quarter.Net sales rose to 162.68 billion rupees from 137.10 a year ago.ONGC is required to partially subsidise fuel sales to state-run retailers, which in turn sell fuel at state-set, below-market prices.Shares in the company, valued at $53.5 billion, closed 0.3 percent higher at 277.20 rupees ahead of the announcement. The stock has declined nearly 14 percent so far in 2011, compared with an 11.2 percent fall in the main stock index. (Reuters)
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GAIL (India) Limited has registered a turnover of Rs 8,867 crore in the 1st quarter (Q1)of FY 2011-2012 which marks a 25 percent increase from their revenue of Rs 7,096 crore earned in the corresponding financial quarter last year. The company's profit before tax increased by 9 per cent to Rs 1,443 crore in this quarter from Rs 1,322 crore in in Q1 2010-11 and there has been a significant rise of 11 per cent in their net profit which has increased to Rs 985 crore from Rs 887 crore.Additionally, GAIL has allocated Rs 682 crore towards LPG subsidy this quarter denoting a substantial increment from the Rs 445 crore it spent in its first quarter last year. Furthurmore, the company has experienced a growth of 32 per cent net sales from natural gas trading which rose from Rs 5,452 crore in last year's Q1 to Rs 7,205 crore in this quarter. The revenue from natural gas transmission during the first quarter of the current financial year has increased by 5 per cent to Rs 939 crore as against Rs 897 crore in the corresponding quarter of the previous year. The net sales from LPG and other liquid hydrocarbons businesses during this quarter have increased by 4 per cent to Rs 814 crore from Rs 781 crore. The revenue from LPG transmission however, remained flat at around Rs 114 crore. The increase in revenue is mainly due to higher volume of natural gas transmission and an increase in the price of APM gas as well as LPG and liquid hydrocarbons. The natural gas transmission during the first quarter of the current financial year was 117.16 Million Metric Standard Cubic Meter Per Day (MMSCMD) as against 116.18 MMSCMD in the corresponding quarter last year. The quantity of polymer sales remains flat at 88 TMT and LPG and other Liquid hydrocarbons sales were 349 TMT as against 356 TMT in the corresponding quarter in the previous year. The LPG transmission during the first quarter of the current financial year was 817 TMT as against 788 TMT during the corresponding quarter in the previous financial year. The quantity of polymer production was 109 TMT as against 99 TMT, LPG and other Liquid hydrocarbons production were 350 TMT as against 361 TMT in the corresponding quarter in the previous year.
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Oil prices fell towards $102 on Monday after Greece said it would miss its deficit target and on concerns rose about Franco-Belgian bank Dexia, which pulled down stocks and the euro, whilst the dollar strengthened.Brent crude futures were down 62 cents to $102.14 a barrel at 0819 GMT after hitting an intraday low of $101.12. U.S. crude futures were down 99 cents to $78.21.Investors and traders have been troubled by draft figures released by Greece on Sunday which showed it would miss a deficit target set just months ago in a massive bailout package. This suggests the steps taken to avert bankruptcy may not be enough.In addition, Belgian and French finance ministers will meet on Monday to discuss ways to shore up the balance sheet of Franco-Belgium financial services group Dexia. Dexia has one of the largest exposures to Greece among non-Greek banks.The euro and European shares opened down as investors mulled the lack of a credible solution to Europe's debt crisis."Greece said it could not meet its deficit target for the rescue plan and I think that was a significant input," said Olivier Jakob, oil analyst at Petromatrix."There is the possibility that Belgian bank Dexia might need to go through some sort of nationalisation. The market is still very jittery about the banks so that could put some pressure on there."Weak DemandChristophe Barret, global oil analyst at Credit Agricole CIB, pointed to weak demand figures in the U.S. and Europe, and the return of Libyan crude to the market as likely to weigh on the oil price. "At over $100 a barrel the Brent price is still pretty high so it should continue to go down," he predicted.United Arab Emirates (UAE) OPEC governor Ali Obaid Al-Yabhouni also pointed to "ominous clouds on the horizon" for oil demand because of global economic problems.European debt problems and the prospect of weaker demand in parts of Asia are a big worry for producers, he said.Analysts and traders are now unsure as to where oil will go next. Christopher Bellew, a trader at Jefferies Bache, said that if Brent dipped below $100 it would probably not stay there for long as funds would come back in and start buying.But Jakob suggested there was a risk of some selling by hedge funds this week because last Friday was the final day for many hedge funds' quarterly redemption notice periods."The oil market will be a tough call this week. The market closed poorly on Friday and diminished the developing signs of technical support," said MF Global in its daily report.A bearish target at $99 per barrel has been established for Brent, according to Reuters market analyst Wang Tao.Chinese data offered some support to prices as it showed industrial activity was improving. China's factory activity picked up in September for a second month in a row and export orders strengthened.The official Purchasing Managers' Index inched up to 51.2 from August's 50.9, largely in line with a median forecast of 51.3 in a Reuters poll.(Reuters)
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International sanctions designed to stop Iran's disputed nuclear programme would only really bite if its other big Asian buyers follow India's lead and bow to US pressure to cut the flow of oil money to Tehran.The Islamic Republic will forego around $45 million a day or a total of $1.4 billion in August -- if it halts around 400,000 barrels per day (bpd) of crude exports to India -- where refiners have run up a $5 billion debt since India's central bank blocked payments to Iran after pressure from Washington.With Iranian heavy crude selling for around $40 more a barrel than a year ago, Iran's 2 million bpd plus sales to other customers should make up for the Indian export dip -- especially as Iran is likely to store the oil and to sell it later.But some in the Iranian government fear other buyers could also yield to pressure from Washington to stop helping Tehran's nuclear plans indirectly through state-controlled oil sales."This move by India could also encourage Iran's other oil customers. Such a trend will harm Iran as the country's economy is reliant on petrodollars," said a senior Iranian oil official in Tehran, who asked not to be named.The US government estimates oil exports generate around half of Iranian government funds and Iran says it can meet all its development needs by selling crude for around $81.50 per barrel.Iranian heavy crude sells for less than light futures on international markets, where the benchmark Brent was trading above $117 a barrel on Wednesday.But at over $112 a barrel, according to Reuters data, Iranian crude is still $30 a barrel above Iran's budgeted price for this year and has remained comfortably above $80 since late 2010."Iran is still raking in plenty of oil revenue ... but as it is not just how much money they are pulling in but how much they need to balance their current account," Jamie Webster, senior country strategies manager at PFC Energy in Washington, said.International sanctions targeting Iran's lucrative energy industry do not forbid dealing in Iranian crude but many companies, especially those with U.S. operations, have shied away from buying it to avoid clashing with Washington and because of difficulties in organising bank transactions.Until India's central bank stopped clearing payments to Tehran in December, Iran was still able to sell all it could produce to energy-hungry buyers in Asia.In the unlikely event that China also stops buying Iranian crude, it could slash Tehran's crude earnings by another $60 million a day, wiping out the higher crude price cushion on Iranian finances.There is little sign that Chinese buyers who took and paid for around 540,000 bpd of Iran's crude in the first six months of 2011 will follow the example of US-friendly India.But US allies South Korea and Japan, which are still seen buying Iranian crude purchases after cutting back last year, could cave in to sustained pressure not to dabble in Iranian crude.Iran does not give official data on where it sells its crude to so it is difficult to build a precise picture.Competing For Market ShareThe threat of billions of dollars in lost oil revenues being pocketed by rival crude exporters like Saudi Arabia, which has already stepped in to fill the gap in Indian crude supplies left by Iran, should serve as a stark warning to the government in Tehran."This dispute will be solved but it is a reminder to the Iranian government that before saying sanctions have no impact on the country, they should think twice," independent Iranian analyst Sadegh Sofi said."This is a clear result of President Ahmadinejad's hard line and harsh policies."Iranian government officials have repeatedly said sanctions are not hurting and that Iran can develop its vast gas and oil wealth without external project funding or vital technology transfers.But already the reality is that western sanctions have effectively prevented Iran from fully exploiting the world's second largest gas reserves, costing the isolated Islamic Republic hundreds of billions of dollars in potential export earnings over years."Sanctions on gas and liquefied natural gas (LNG) exports are more serious," Webster said. "While they may be able to put together some pipeline deals, sanctions will largely keep LNG technology out of their grasp."Iran has long dreamt of boosting gas exports to levels close to leading LNG exporter Qatar with which it shares one of the world's largest fields.But western sanctions have been highly effective in limiting access to funds and technology it needs to produce enough gas to meet even its own rapidly rising demand, let alone liquefy any gas for export by tanker.Iran's own gas consumption has risen more markedly than its output as a result, making it a net importer for most of the last two decades but it remains hopeful of some day being able to produce enough to sell some excess gas some day.The Iranian government has admitted LNG plans may be set back by a tight sanctions stopping any complicated gas liquefaction technology from falling into Iranian hands.US ally Qatar has become one of the world's wealthiest countries by pumping, freezing and selling tens billions of dollars worth of gas a year from the field it shares with Iran.Tehran still hopes to export gas to Europe by pipeline and signed a deal with uneasy and unstable neighbours Iraq and Syria earlier this week, but analysts say that sanctions discouraging any foreign investment in Iran's gas fields will likely delay even pipeline export projects for years to come.(Reuters)
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Blackstone Group LP will invest 5 billion rupees ($111 million) in Indian power producer VISA Power, the private equity firm said on Wednesday, in a deal that underscores growing investor interest in India's infrastructure building.VISA Power, a part of diversified $1.1 billion VISA Group, has a 1,200 megawatts captive coal-fired power plant, which is in an advanced stage of development, in Chhattisgarh, Blackstone said in a statement.It did not disclose how much the stake would be.Financing much-needed infrastructure projects through private equity investors has been growing in a country infamous for clogged roads and power outages and lacking a mature local bond market to provide long-term project funding.Private equity investment in infrastructure in India grew to $4 billion last year from about $1 billion in 2006, a recent Bain & Company report found, predicting activity could expand 25-50 percent annually over the next three years.A group of investors including Morgan Stanley's infrastructure arm, Goldman Sachs and General Atlantic last year invested $425 million in Asian Genco Pte Ltd, which has stakes in power generation assets in India.Blackstone has appetite to invest up to $1 billion in India's power sector over next three to five years, its India head, Akhil Gupta, had said last August.The private equity firm last year agreed to invest $300 million in unlisted Indian energy firm Moser Baer Projects Private Ltd, owned by the founder of Moser Baer India.Earlier this month, Blackstone said it would invest $34 million in FINO, an Indian technology solutions provider for banks, microfinance institutions and insurance companies. (Reuters)
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