Cairn-Vedanta deal: LIC expresses doubts over valuations, debt

Seeking to muster support of minority shareholder LIC to the proposed Cairn-Vedanta merger, Cairn India officials on Tuesday met top brass of insurance firm and are understood to have allayed concerns over valuations and debt.

At the meeting, LIC officials told Cairn India officials that they have some concerns around valuation and debt situation of the entity post merger, a senior official from the insurance behemoth told PTI.

LIC owns 9.06 per cent in Cairn India, second only to 9.82 per cent of UK's Cairn Energy Plc. LIC also has a minority 1.77 per cent holding in Vedanta.

The merger needs approval of at least half of the minority shareholders. Minority shareholders of Cairn, who have seen share prices almost halve to Rs 170-180 in past one year on back of the company cutting exploration expense and falling oil prices, have criticised the offer of one Vedanta Ltd share and one 7.5 per cent preference share in Vedanta for every share they hold.

Cairn India has Rs 16,867 crore of cash on its books, while Vedanta has debt of Rs 37,636 crore.

This has led to concern among minority shareholders about the cash that will become part of the new entity.

At the meeting which took place at LIC's corporate head office in Mumbai, the Cairn India team is learnt to have apprised of the advantages of the merger to LIC.

A team of senior Cairn officials called on senior officials of LIC to explain how the Cairn's merger with Vedanta will be good for the company, an LIC official said, requesting anonymity.

"We have not looked into the valuation of the Vedanta offer as of now. After the Cairn officials' visit to our office, the company will be sending the full document about the merger deal to us. Then only can we have a look at the issue," another official of LIC said.

"We are asking some more details from Vedanta. We had undertaken some due-diligence when Vedanta picked up majority stakes in Cairn. We have fair amount of idea how both the companies have been operating," LIC officials said.

There are three different wings within the investment department at LIC, including monitoring and account, risk management and research.

Once all these departments satisfy about various aspects of the proposed deals, we will inform the company about our decision before the AGM, officials at LIC said.