Vedanta fuels expansion with Cairn India stake

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Miner Vedanta Resources snapped up a majority stake in energy explorer Cairn India on Friday as the firm expanded operations in the emerging market powerhouse with its first foray into oil and gas.

Vedanta said it will buy a controlling share of Cairn India for up to 9.6 billion dollars (7.5 billion euros), adding to its assets that already include aluminium, copper, iron ore and zinc mines.

The India-focused group, which also has facilities in Australia and Zambia, follows the world's biggest miner BHP Billiton in adding oil to its portfolio.

"The proposed acquisition significantly enhances Vedanta's position as a natural resources champion in India," Vedanta's Indian billionaire owner Anil Agarwal said in a statement.

The news catapulted shares in Vedanta and Cairn Energy -- the majority-owner of Cairn India -- to the top of London's FTSE 100 index of leading companies.

"This is an interesting development for Vedanta, being their first foray into oil and gas -- the deal will give them access to the Rajasthan oilfields among others," said trader Rajesh Patel at London-based trading firm Spread Co.

Cairn India is the country's fourth-largest oil and gas company, thanks to a massive energy find in the western Indian desert state of Rajasthan.

"Cairn India's Rajasthan asset is world class in terms of scale and cost, delivering strong and growing cash flow," Vedanta's Agarwal said.

"The company has a proven management team and very significant further resource potential. Cairn India will benefit from Vedanta's track record of acquiring and growing world class companies, especially in India."

Vedanta said it would buy 51-60 percent of Cairn India for 8.5-9.6 billion dollars (6.7-7.5 billion euros). The deal is expected to complete in three months.

Scottish exploration group Cairn Energy, which holds 62.4 percent of Cairn India, said the sale would allow it to return cash to shareholders and provide it with funds to push on with its drilling programme in Greenland.

"I am delighted to announce the proposed disposal of a significant shareholding in Cairn India in line with our objective of adding and realising value for shareholders," said Cairn Energy's chief executive Bill Gammell .

The sale is a 32-percent premium to the average closing share price of Cairn India over a 90-day period.

"The premium of 32 percent reflects the world-class nature of these assets," said Gammell.

"We are extremely proud of what we have achieved in India. This is the right time for Cairn to make this disposal.

"We will retain a significant minority in (Cairn India). This is not an exit from India by Cairn Energy. We are positive about the opportunities in India," he told a conference call.

Cairn India owns a 70 percent stake in the Mangala oil field in the prolific Rajasthan block where the rest is held by state-owned Oil and Natural Gas Corp.

Cairn India estimates the Mangala field can produce up to 150,000 barrels of crude oil per day. The entire Rajasthan block is estimated to have a potential of up to 240,000 barrels per day.

Cairn Energy began to pump crude in Rajasthan in August last year. It bought the field in 2002 from Anglo-Dutch giant Shell, which had concluded it contained no major reserves. Two years later, Cairn struck oil.

In London trade on Monday, Vedanta's share price jumped 4.87 percent to close at 2,153 pence. Cairn Energy gained 5.32 percent to 493.2 pence while the FTSE 100 ended flat at 5,276.1 points.

Westhouse Securities analyst David Hart said the deal would allow Vedanta to offset any increase in fuel costs.

"One benefit might come from the natural hedge (that) owning an oil and gas company provides," Hart said.

"As fuel costs associated with mining activities go up, this is offset by higher profits in the oil and gas division," he said.

© 2010 AFP

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