Cairn India offers Rs335 a share in Rs5,725-cr buy-back

Cairn India on Tuesday announced a buy-back of its shares, at Rs335 apiece, for a maximum amount of Rs5,725 crore, in a bid to increase control of the Anil Agarwal-led group Vedanta Resources.

The offer price is 3.5 per cent above the stock's previous closing rate. However, analysts see this as too low to attract larger participation.

Cairn had proposed to buy 170.9 million shares or 8.9 per cent of its total shareholding from the open market at not more than Rs335 apiece.

Against this, Vedanta Group had acquired its Cairn India stake at Rs355 per share, a price the stock has not touched over the last one year.

"The maximum buyback price represents over 4 per cent premium compared to the average of the weekly high and low of the closing share price of the company during the last two weeks," it said.

Cairn India's buyback offer also includes the 10.27 per cent held Cairn Energy Plc of UK.

Once shareholdersand other approvals are in place, the buyback will start in January, Cairn India said.

Post buyback, Vedanta Group's holding in Cairn India will rise to 64.53 per cent from the current 58.76 per cent.

The buyback would be made from the open market through the stock exchanges, at a price not exceeding Rs335 per share, up to an aggregate amount not exceeding Rs5,725 crore, Cairn India said.

"The indicative maximum number of equity shares of Rs 10 each that can be bought back would be 170,895,522, resulting in the reduction of equity capital by approximately 8.9 per cent," the statement said.

Cairn India, the largest oil producer in the country, currently produces over 213,000 barrels of oil and oil equivalent gas per day and is on track to meet year-end target of over 225,000 barrels from all producing assets.

"This proposal is a shareholder reward mechanism through decrease in the equity share capital and a consequent increase in the earnings per share of the company.

"The company believes that the buyback will improve shareholder returns while maintaining the current dividend payout ratio as per the approved policy," the statement said.

Cairn said it will be seeking approval of the shareholders by way of a special resolution to be passed through postal ballot.

Vedanta Group holds 1,122.7 million shares out of a total of 1,910.5 million outstanding shares of Cairn India. Cairn UK Holdings Ltd has 196.1 million shares while Life Insurance Corp (LIC) of India has 167.7 million (8.78 per cent) shares.

ICICI Prudential hold 1.08 per cent shares while foreign institutional investors (FIIs) have 15.14 per cent holding in Cairn India.