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HomeIndia TakesMONTHLY LIMIT OF ONE SUBSIDIZED CYLINDER PER HOUSEHOLD MAY GO

MONTHLY LIMIT OF ONE SUBSIDIZED CYLINDER PER HOUSEHOLD MAY GO

ogNew Delhi: The National Democratic Alliance (NDA) government plans to do away with the limit of one subsidized cooking gas cylinder per household.

 

The move comes before assembly elections in Maharashtra, Haryana, Jammu and Kashmir, Delhi and Jharkhand slated to happen later this year.

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The issue is expected to be taken up soon by the Cabinet Committee on Political Affairs (CCPA).

 

To reduce its subsidy bill and cut the fiscal deficit, the previous United Progressive Alliance (UPA) government had restricted the number of subsidized domestic cylinders per household to six every year in September 2012, revising it to nine the following January. The cap was revised in January 2014 to 12 cylinders per annum starting 1 April 2014, before the general election.

 

The government, however, said a household couldn’t buy more than one subsidized gas cylinder per month.

 

“The last revision to 12 cylinders done before the general election came with a rider that the LPG (liquified petroleum gas) households can avail only one cylinder per month. This created a problem, as a normal booking cycle is of 21 days. There have been practical difficulties,” said a government official requesting anonymity.

 

There are around 140 million cooking gas customers in the country. While a petroleum ministry spokesman didn’t reply to queries emailed on Monday, the official said, “the proposal is yet to be put up for CCPA’s approval”. Oil marketing companies (OMCs) such as Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) ran up a revenue loss of nearly `1.4 trillion in the last fiscal year because of selling oil products at below production cost.

 

Of this, `46,458 crore was on account of selling subsidised domestic cooking gas. The government paid `499.52 as subsidy for every cooking gas cylinder in 2013-14.

 

According to the Government’s Vision-2015, the target is to raise India’s LPG population coverage from 50% to 75% including rural areas, too.

 

The Bharatiya Janata Party (BJP) in its election manifesto, promised to “set up Gas Grids to make gas available to households and industry”.

 

The issue holds importance given the country’s rising energy import bill. India has an energy import bill of around $150 billion, expected to hit $300 billion by 2030. India imports 80% of its crude oil and 25% of its natural gas requirements.

 

Demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) today to around 1,500 mtoe, according to the oil ministry.

 

“The LPG demand growth is expected to remain high due to increased cap of subsidised cylinders, which tend to encourage the diversion of domestic LPG for Auto-LPG and commercial LPG purposes (where prices are deregulated and almost double that of subsidised domestic LPG),” rating firm Icra Ltd said in a 7 July report.

 

The government’s plan to do away with the limit of one cooking gas cylinder every month comes in the backdrop of the suspension of direct gas subsidy transfers to bank accounts that are linked to Aadhaar unique identity numbers.

 

The Supreme Court had said in September that the government can’t make Aadhaar numbers mandatory for people to avail of the benefits of government services and subsidies, including the direct benefit transfer scheme for delivery of subsidized cooking gas.

(Source: Mint July 25, 2014)

GOVT TO GO AHEAD WITH 18,000-CR ONGC STAKE SALE IN REFORMS PUSH

 

NEW DELHI: Setting aside the objections raised by the state-owned Oil and Natural gas Corp (ONGC) on government’s plans to disinvest 5% of its stake in the company, the finance ministry has decided to go ahead with a stake sale in the country’s largest profit-making public sector undertaking.

 

“The inter-ministerial group (constituted to take the disinvestment process forward) can now start the process of appointment of merchant bankers and other intermediaries to the issue since the draft Cabinet note for disinvestment of 5% paid up equity capital in ONGC has been approved by the finance minister,” said the minutes of a recent meeting in the finance ministry, a copy of which is available with HT.

 

“There will always be some objections when it comes to disinvestments but we will have to go ahead with the exercise,” a senior finance ministry official said.

 

As per the disinvestment roadmap, the government will disinvest 5% paid up equity capital out of Centre’s shareholding of 68.94% in ONGC through offer for sale (OFS) route.

 

A 5% disinvestment stake alone would help the exchequer raise ` 18,000 crore, or close to 42% of the ` 43,425-crore disinvestment target fixed by the government in the remaining eight months of the current fiscal.

 

The government, which has set a fiscal deficit target of 4.1% of GDP, is looking to exceed the disinvestments target, which will then ensure that the red line is not crossed.

 

Alongside, given the size of the ONGC stake sale, the government has decided to appoint up to five merchant bankers for this OFS. Moreover, only those merchant bankers who have handled at least one domestic issue (IPO/FPO/OFS) of the size of ` 1,000 crore or more during the period April, 1, 2011 to June 30, 2014 would be appointed.

 

A legal advisor will also be appointed and will be a consortium of international legal experts. “Top 10 legal firms as per the prime data base leaguetable may be invited to submit proposals,” the minutes added.

 

ONGC had written to the petroleum ministry to first resolve issues like fuel subsidy sharing and natural gas pricing and to fetch better price. It said any disinvestment at this stage may not realise the true value of the company shares. Stating that the stake sale should happen only after the resolution of these issues, it wrote: “It would be prudent that before divestment of ONGC’s shares by the government, these issues are resolved so that the realisation of the government from divestment of ONGC’s shares is optimised.”

 

The government uses the OFS route to divest its stake in PSUs that come in top 100 companies as per market capitalisation. So far it has divested stake in 11 PSUs through this route.

(Source: Hindustan Times July 25, 2014)

 

EXPERT GROUP MAY BE SET UP TO STUDY GAS PRICING

 

NEW DELHI: The government plans to consult a group of eminent people possibly led by former minister Suresh Prabhu or a “specialised agency” to review natural gas pricing, including the UPA-approved Rangarajan Formula that would have doubled gas rates to $8.4 per unit in April if the Election Commission had not vetoed it.

 

Some officials say engaging organisations having “generic expertise” in this matter would be time consuming and the government would miss the September 30 deadline, hence a committee under Prabhu should be asked to revisit the entire gas pricing issue. Other names proposed for the panel are Pratap Bhanu Mehta, chief executive of the Centre for Policy Research, and Bibek Debroy, a faculty member in the same institution.

 

The Cabinet Committee on Economic Affairs on June 25 decided to “comprehensively review” the issues related with gas pricing in public interest, and asked gas producers to keep selling at the old price of $4.2 per unit until the end of September.

 

Officials familiar with the matter said the task is enormous and efforts would be made to ensure that the job is completed quickly, so that the government can take a decision before the end of September.

 

The government is studying various aspects of gas pricing including Reliance’s move to initiate arbitration against the government on the issue of delay in implanting the Rangarajan formula. Also, the Supreme Court is hearing a public-interest litigation on the matter. In this background, the oil ministry may consult the law ministry’s opinion before taking any decisive step, official sources said.

(Source: The Economic Times, July 25, 2014)

 

SC SETS ASIDE TRIBUNAL ORDER ASKING ONGC & JNPT TO FUND FISHERMEN REHABILITATION

 

NEW DELHI: The Supreme Court has quashed the National Green Tribunal’s order asking ONGC and Jawaharlal Nehru Port Trust (JNPT) to deposit R30 crore towards proposed rehabilitation of fishermen, who allegedly lost their livelihood due to laying down of the Uran-Trombay Jawahar Creek oil pipeline and the Uran-Trombay Gas pipeline.

 

A forest Bench headed by Justice JS Khehar while setting aside the NGT’s interim order said that ONGC and JNPT had undertaken to pay if a final order held them liable to compensate the fishermen.

 

The NGT had asked ONGC and JNPT to deposit R10 crore and R20 crore, respectively, to be paid to the fishermen community operating in the Uran area of Raigarh for purported loss caused to environment, ecology and livelihood due to replacing of the two oil and gas pipelines in 2007-08.

 

NGT had said that there was threat of environmental damages caused due to expansion of the activities at JNPT and development activities of CIDCO. Besides, the oil spill by faulty maintenance of ONGC pipelines had contributed to loss of environment and ecology, it said, directing JNPT to remove soil and artificial blocks/obstructions created in the natural flow of tidal water in creek and undertake restoration of destroyed mangroves.

 

ONGC denied there was leakage which caused oil spill on seabed and claimed it had paid compensation to CIDCO for the acquired lands. Even JNPT denied the development of the port had affected tidal environment and livelihood of the fishermen.

(Source: The Financial Express, July 25, 2014)

 

‘AADHAAR WILL BE USED FOR LPG SUBSIDY TO NEEDY’

 

Close on the heels of Prime Minister Narendra Modi endorsing the Unique Identification Authority of India and pitching for use of the Aadhaar platform for speedy roll-out of the fledgling direct benefit transfer (DBT) scheme, petroleum minister Dharmendra Pradhan said on Thursday that in order to target the LPG subsidy to the needy, the government will also use Aadhaar.

 

As far as LPG subsidy is concerned, the minister said, some section of the society needed it, but added that the question was how to identify them and fix the quantum of subsidy. “In order to reduce the subsidy burden, the needful reforms would be taken. We are working towards a mechanism to roll out targeted subsidy. It is possible to identify targets, maybe through UIDAI and NPR, and the marketing network would be effectively monitored,” Pradhan said, setting a timeframe of “a month or two” to take steps in this regard.

 

Speaking at the Express Group’s Idea Exchange programme, Pradhan, 45, recalled the SC ruling that natural resources like gas belonged to the people of India with the government being the custodian of the same. On gas pricing, he said, “This (the SC’s view) is the primary premise. We feel that all issues related to gas pricing should be looked at afresh. The (Rangarajan) formula has been questioned; so without being judgmental, the government wants to review it.”

(Source: The Financial Express, July 25, 2014)

 

INDIA PAYS THIRD INSTALMENT OF OIL DUES TO IRAN

 

New Delhi: India paid a third and final instalment of $550 million (around `3,300 crore) to Iran on Thursday, three people with knowledge of the matter said, part of the frozen funds released to Tehran in the interim deal with world powers.

 

Under a pact reached in November, Iran won access to $4.2 billion in oil revenues held by its buyers, to be paid out in eight money transfers through July. The payments were linked to Iran carrying continuous reduction in its nuclear activities.

 

Iran and six world powers have now agreed to extend the November deal another four months, after failing to reach a final agreement before a 20 July deadline. The extension allows Tehran access to another $2.8 billion in frozen oil monies.

 

Five Indian refiners—Mangalore Refinery and Petrochemicals Ltd (MRPL), Essar Oil Ltd, Indian Oil Corp. Ltd (IOC), Hindustan Petroleum Corp. Ltd (HPCL) and HPCL-Mittal Energy Ltd (HMEL)—have partly paid money owed for crude imports in the previous two instalments.

 

Of the total of about $4.6 billion the refiners owe Iran as of 31 May, they have paid $1.65 billion by taking the last three of the eight payment slots scheduled in the November deal.

 

In the latest round of payments, HMEL, partly owned by steel tycoon L. N. Mittal, did not make its payment due to exchange rate fluctuations, the people mentioned above said. That led to a higher payout by the other four.

 

“HMEL shall not be participating in this payment process whereby exchange losses are being imposed upon HMEL contrary to commercial understanding,” the company said to the oil ministry earlier this month in a letter seen by Reuters.

 

HMEL as a policy does not comment on its crude sourcing or matters associated with it, a spokeswoman for the company said, replying to an email seeking comments.

 

Essar Oil cleared dues of $240 million, followed by $236 million by MRPL, $67 million by IOC and $7 million by HPCL, which also has a stake in HMEL, the people said.

 

HMEL was due to pay money owed for 4 million barrels of oil imported from Iran in 2012. Since then, however, the rupee has weakened, and the fluctuation would increase its cost by about 10%, the company said in the letter.

 

India, which imports a total of 4 million barrels per day of oil, has been steadily reducing its dependence on Iran. Over the last five years to the fiscal year ended this past 31 March, Iran’s share of India’s crude imports has fallen by two-thirds to 5.8%.

 

However, in the January-June period for this year its crude imports from Iran rose by a third compared to a year ago, data from people with knowledge of the matter showed.

 

China and India both started raising their oil imports from Iran after the interim deal was reach in November.

(Source: Mint July 25, 2014)

 

IN RELIANCE-GOVERNMENT DISPUTE, WHO ARBITRATES THE ARBITRATORS?

 

NEW DELHI: The lack of mutually acceptable arbitrators has delayed the resolution of the two-and-a-half-year-old dispute between Reliance Industries Ltd (RIL) and the Government of India over the recovery of $2.376 billion worth of investment in the KG-D6 gas block in India’s largest natural gas basin.

 

This controversy has raised questions of the credibility of the eventual settlement of a landmark case on the role of the government and the private sector in managing a critical and strategic national resource.

 

On Monday, Michael Hudson McHugh, a retired Australian judge who was appointed the presiding arbitrator by the Indian Supreme Court in April, finally withdrew from the case after first declining and then accepting the position.

 

McHugh’s appointment came after the apex court reviewed its own decision to appoint another retired Australian judge, James Spigelman in the wake of government lawyers noticing that Spigelman’s name was amongst the RIL’s list of proposed arbitrators. In the previous order, Judge S S Nijjar had said that the presiding arbitrator should be one not suggested by either party.

 

Now, documents reviewed by Business Standard show that RIL’s nominee arbitrator, former Chief Justice of India S P Bharucha, offered legal opinions and oral advice in conference to RIL and its group companies on at least eight different occasions from 2009 to 2012 for a fee. He also served as RIL’s nominee arbitrator in a dispute with Gas Authority of India Ltd (GAIL)in 2007 over the price of gas supplied to GAIL from the Panna Mukta Tapti (PMT) fields.

 

Bharucha retired in 2002, but in 2000 he was part of a three-member Supreme Court Bench that ruled in favour of RIL in a public interest litigation (Appeal 2,485 of 1999) that questioned the allotment of the PMT field to RIL.

 

The financial relationship between Justice Bharucha and RIL was disclosed by the company, under the International Bar Association (IBA) Guidelines, in a letter to the legal representatives of the government last month.

 

RIL has denied all allegations of conflict of interest, insisting the company has followed all procedures.

 

“All disclosures which were required by the government’s lawyers have been made by RIL’s lawyers to the government’s lawyers,” an RIL spokesman said in an email response.

 

“Sorry, no comments,” Bharucha said in an email.

 

“Prima facie, this constitutes a justifiable ground to infer a conflict of interest,” said former economic affairs secretary E A S Sarma, “(and) raises justifiable doubts about the impartiality and independence of the arbitrator.”

 

In 2013, Sarma filed a PIL against the then petroleum minister M Veerappa Moily and RIL for colluding in the violation of provisions of the production-sharing contract signed between RIL and the government.

 

He has also questioned if the arbitration procedure is applicable in this case. “Since there are allegations of collusion in the case of the KG Basin dispute, the issues now being referred for arbitration may not strictly be arbitrable,” he said.

 

RIL’s disclosure has also prompted questions on the applicability of Indian law in international arbitrations. While the oil ministry has insisted that its contracts are governed by Indian law, the company has disclosed its prior relationship with Bharucha under the provisions of the IBA guidelines on conflict of interest, rather than the Indian Arbitration and Conciliation Act of 1996.

 

While the ‘Orange List’ provisions of the IBA guidelines advise parties to disclose all prior financial engagements up to three years prior to the appointment of the arbitrator, Indian law does not set any time limit for the disclosure.

 

Section 12 of the Indian act also requires the nominee arbitrator (in this case Bharucha) to disclose information that could lead to doubts on his impartiality, not the company (in this case RIL).

 

Officials in the oil ministry said Bharucha was yet to disclose all his prior dealings with RIL despite the fact that he was nominated in 2012.

 

“Thus far, RIL’s arbitrator has not specifically responded to our requests for disclosure,” said a senior official at the oil ministry, adding: “Under Indian law, the requirement is essentially for full disclosure of all previous engagements.”

 

The official declined to comment whether the government would challenge Bharucha’s appointment. “We are waiting for advice from our legal team,” he said.

(Source: Business Standard, July 25, 2014)

 

CAIRN INDIA STOCK FALLS 6.6% OVER $1.25-BN LOAN TO PARENT

 

MUMBAI: Corporate governance advocates and analysts have slammed Cairn India, an Anil Agarwal group company, for extending a loan of $1.25 billion to Sesa Sterlite, another group company, at generous terms, instead of using the cash for development of its operations.

 

Cairn India’s stock on Thursday fell 6.5 per cent to Rs 322 a share, losing Rs 4,400 crore of market value, as angry investors gave a sell order on the company’s shares. Cairn had indicated after its June quarter results on Wednesday that the two-year facility to the foreign Sesa subsidiary will yield better returns than its fixed deposits. This was the first time the company made this disclosure.

 

But investors are not buying the argument. “Although Cairn’s management believes the interest rate earned is more than that received from its fixed deposits in the US currency, we believe it is negative for all shareholders of Cairn India, as the corporate loan of Libor plus three per cent rate of interest is too cheap, and hampers overall capital allocation of Cairn,” says Motilal Oswal Securities Analyst Nitish Rathi.

 

Of the loan, Cairn has already disbursed $800 million so far and plans to disburse the rest in the next few weeks. The company had cash and cash equivalents of $4 billion on its book as of June this year.

 

Corporate governance advocates say Cairn did not make disclosures to small investors about such a large related-party transaction; this itself was a violation of Sebi norms and warranted an investigation. “This is in complete disregard of the disclosure norms. Of the loan, almost $800 million has already been disbursed. And the company chose to do it before October 1 when, according to the new company law, a majority of small shareholders need to clear such related-party transactions,” says Shriram Subramanian, Founder of InGovern Research Services.

 

Analysts say the company has taken the necessary approvals for extending this facility from the Board and Audit Committee, in which the related parties were not allowed to vote. However, the related-party loan facility is worrying in the light of large debt levels of Sesa Sterlite, they say. Sesa Sterlite’s consolidated debt stood at Rs 80,000 crore as of March this year after London-based Vedanta transferred its stake in Cairn and its debt to the Indian company.

 

“The management ruled out the option of returning surplus cash to shareholders in the form of higher dividends, as the company might require the given amount for capex on development of new discoveries from 2016-17 onwards, by which time the loan will be repaid to the company,” write Kotak Securities analysts Tarun Lokhotia, Sanjiv Prasad and Vinay Kumar in a note. “We see the related-party loan facility to a subsidiary of Sesa Sterlite as a significant negative, as it warrants concern on effective utilisation of existing cash/equivalents and future cash flows of the company, notwithstanding the near-term economic rationale indicated by the management,” they write.

 

Cairn India reported a 65 per cent year-on-year decline in its consolidated net profit for the April-June 2014 quarter, owing to a change in depreciation procedures. The net profit was also below Street consensus estimates of Rs 2,538 crore, but revenues were mostly in line with market expectations. The bottom line also took a hit, with a 38.5 per cent year-on-year jump in regular depreciation and amortisation and nearly two-and-a-half times jump in exploration cost in the first quarter.

(Source: Business Standard, July 25, 2014)

 

CAIRN INDIA’S $1.25-BILLION LOAN OFFER TO VEDANTA GROUP RAISES CONCERNS

 

MUMBAI: Cairn India’s move to extend a loan of $1.25 billion to its parent Vedanta Group for a two-year period has raised concerns among investors about the former’s cash utilisation and corporate governance issues.

 

The company disclosed on Wednesday that it had entered into a facility for extending a loan of $1.25 billion to Vedanta Group companies of which $800 million has been disbursed during the June quarter to a subsidiary of Sesa Sterlite, at an interest rate of 3% above LIBOR for a period of two years.

 

“We see the related-party loan facility of $1.25 billion extended by Cairn India to a subsidiary of Sesa Sterlite as a significant negative, as it warrants concern on effective utilisation of existing cash/equivalents and future cashflows of the company, notwithstanding the near-term economic rationale indicated by the management,” Kotak Institutional Equities said in its results review report.

 

Amit Tandon, founder and managing director of proxy advisory firm IiAS, says that though the transaction meets the latest Companies Act guidelines, the deal raises concern related to corporate governance.

 

“The related party transaction with respect to giving loans doesn’t need shareholders’ approval, but given the magnitude of the loan and Vedanta being a global firm, the company should have made a disclosure at the time of entering into loan agreement,” said Tandon.

 

The spokesperson at Cairn India said, “This loan has been extended purely as an investment yielding better returns compared to fixed deposits where such sums were earlier invested at a return of around 2-2.5% p.a. The investment has been done at a return of 3% over and above the ongoing LIBOR rates. This return is much higher than the bank deposits for similar tenure and commensurate to a margin linked to a BB rated investment option.”

 

Analysts at Jefferies in a report on Thursday however believe returning surplus cash to investors through a dividend payout or buy-back would have been a better utilization.

 

As per Cairn India’s latest presentation, its cash and cash equivalents stood at Rs 13,561 crore in rupee funds and nearly $922 million in dollar funds.

 

JN Gupta, MD at SES Governance, however, believes that Cairn India by entering into loan agreement with subsidiary of Sesa Sterlite has compromised on its own liquidity.

 

“The loan entered with its group company is being invested in business and is neither liquid nor rated one. The independent directors should have objected to the move,” said Gupta. The company, on its part, maintains that prior approval of the audit committee was taken and the arm’s length principle has also been duly adhered to. Cairn India shares closed down 6.67% at R322.65 on BSE.

(Source: The Financial Express, July 25, 2014)

 

IiAS WANTS INVESTORS TO VOTE FOR DELISTING OF ESSAR OIL

 

MUMBAI: Essar Energy Holdings, Mauritius, part of the Essar Energy Group, plans to acquire the outstanding 13.7 crore shares of Essar Oil. The floor price has been set at Rs 108.18. At this floor price, the Essar Group will need to spend Rs 1,480 crore to acquire all outstanding shares. The delisting of Essar Oil follows the delisting of the parent company, Essar Energy Plc, from the UK stock exchanges. The Essar Group plans to take its entire hydrocarbons business private.

 

The delisting price is over 6x the book value. The shares are trading at a P/E multiple of around 120x. “These multiples are significantly higher than industry peers. But the company has just begun to report profits from a two-year loss period, therefore, investors need to question whether the delisting price captures the potential of improved performance,” said the IiAS report.

 

IiAS says it expects Essar Oil’s board to confirm tha the company will stand by its reasoning for delisting and neither do a private place/strategic divestment in the next three years nor re-list on any public stock exchange in next five years.

 

A resolution for delisting is passed only by a two-thirds majority, which means that for every onevote against the resolution, there needs to be two votes for the resolution. Promoters cannot vote on this resolution. “In Essar Oil case, every outstanding share will have 3.6x times the power to decide the fate of the delisting resolution,” the report said.

 

Essar Oil’s credit protection steps are weak, reflected in consolidated debt-equity levels of 8.5x and debt-Ebitda levels of over 5x for the year ended March 31, 2014.

(Source: The Financial Express, July 25, 2014)

 

CAIRN TANKS ON $1.25-B LOAN TO SESA ARM

 

The Cairn India stock fell 6.67 per cent in Thursday’s trade on the BSE to Rs. 322.65. This was more a reaction to the revelation of a big-ticket loan given to a related party, and less about Cairn’s weak June quarter show.

 

During the quarter, Cairn entered an arrangement to lend $1.25 billion to a subsidiary of Sesa Sterlite — also a part of the Vedanta Group. Of this, $800 million has already been lent by Cairn for two years and the remaining $450 million will be given in the coming quarters.

 

The company’s stand that the interest rate on the loan — LIBOR plus 3 percentage points — will give the funds a better return than the 2-2.5 per cent they earn currently did not wash with the market.

 

One, lending the funds deviates from the company’s earlier position that it would retain its formidable cash reserves for significant capital expenditure (about $3 billion) planned over the next few years to increase output from its mainstay Rajasthan asset.

 

As of March, Cairn had Rs. 13,707 crore in rupee funds and $1.53 billion in dollar funds. The $1.25-billion loan facility is more than 80 per cent of the company’s dollar funds as of March.

 

Two, since Vedanta’s takeover of Cairn India in 2011, the market has been worried that Cairn’s cash may be used to bail out weaker companies in the Vedanta Group. The loan facility to a subsidiary of Sesa Sterlite, which has not been in the best of health, seems to vindicate these concerns.

 

Also, it did not help that this related-party loan transaction came as a surprise during Cairn’s results conference call and was not disclosed as and when it happened. And the name of the Sesa Sterlite subsidiary that got the loan and the end-use of the funds has not been disclosed yet.

 

Finally, if the $1.25 billion was surplus cash with Cairn, it would have earned higher returns if converted and deployed in rupee deposits.

 

The one-year LIBOR for dollar denominated loans is at around 0.5 per cent a year, so Cairn will get a return of about 3.5 per cent on its loan to the Sesa Sterlite subsidiary. Rupee deposits with Indian banks would have earned a much better 9-10 per cent. Cairn could also have returned the cash to shareholders through dividends and buybacks.

 

It also did not help that the June quarter results were disappointing, with profit down 65 per cent from the year-ago period. Even excluding the impact of the change in depreciation calculation, which caused much of the decline, Cairn’s profit is down 13 per cent year-on-year. Higher costs and lower forex more than offset the increase in overall output and better price realisation.

 

A Cairn spokesperson said that the company’s audit committee has already approved the transaction. Since it fell within the threshold, shareholder approval was not required. Besides, the loan is being extended through a foreign subsidiary of Cairn India. The company’s three-year capex plan of $3 billion is well supported with its current cash reserves of $3 billion and has been bolstered by annualised operational inflows of over $1.5 billion.

(Source: Business Line July 25, 2014)

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