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• Oil explorer Cairn India Ltd, majority owned by London-listed Vedanta Resources Plc and its local unit Sesa Goa Ltd, has said it will soon announce a dividend policy after finalizing a plan to restructure its business.
• Cairn India, which operates oil fields in Barmer in Rajasthan, which it holds jointly with state-run Oil and Natural Gas Corp. Ltd (ONGC), intends to consolidate assets of overseas units locally to make the firm’s structure more tax-efficient, according to Rahul Dhir, chief executive of Cairn India.
• “We expect to announce it (the dividend post-restructuring) in the next two-three months,” Dhir told analysts in a conference call on 26 February. “We are working on a consistent dividend payout policy, based on a ratio of net income (which will be) broadly in line with the market.”
• Vedanta has announced it would merge India’s largest iron ore exporter Sesa Goa and the nation’s largest copper producer Sterlite Industries (India) Ltd into a single entity called Sesa Sterlite.
• Sesa will absorb Sterlite in an all-share deal, India-focused miner Vedanta, controlled by billionaire Anil Agarwal, said in a 25 February statement. Vedanta will transfer for a token $1 its 38.8% holding in Cairn India to Sesa Sterlite, which will hold 58.9% of Cairn India. The merger is expected to be completed by the end of 2012.
• Shares of Cairn India have dipped 3.2% since the Vedanta restructuring was announced, while the oil and gas index has risen 0.68% to 8,711.71 during the same period. On Wednesday, the Cairn India scrip rose 0.53% to end trading at Rs.369.15 on BSE, a day when the benchmark Sensex inched up 0.12%.
• Dhir also said Cairn India was looking at a one-time capital return to shareholders, which he described as being “substantial”.
• Cairn India could pay a dividend of around $250-400 million in the year ending 31 December 2012, analyst Vidyadhar Ginde of Bank of America-Merrill Lynch said in a 2 February note, which implied a dividend of Rs.11-18 per share. “A high dividend payout would make Cairn India attractive just on dividend yield,” Ginde said.
• Alok Deshpande, oil and gas sector analyst at Elara Securities (India) Pvt. Ltd, the Indian arm of a UK-based brokerage, said the proposed restructuring within Cairn India will help the company consolidate all its operations under one company.
• “It then becomes easier to decide how much dividend Cairn India wants to pay as a percentage of profit arising from its operations in various oil and gas assets,” Deshpande said. “With the proposed ramp-up in Cairn India’s oil production and assuming oil prices remain stable, the company is looking at a stable earnings stream for the next four to five years.”
• Cairn India’s dividend-paying ability is important to Sesa Sterlite, since the $5.9 billion debt associated with Vedanta’s acquisition of Cairn India last year will move to the balance sheet of the new company.
• This jump in debt on the books of Sesa Sterlite has drawn criticism from investors and analysts, though Vedanta has said the debt-servicing capacity of the new company will be comfortable, given the assets on its balance sheet and expected cash flows.
• The first hurdle towards the proposed restructuring—which will see the stakes held by several Cairn India subsidiaries registered overseas in its various oil and gas assets in India and neighbouring countries get consolidated into one India-based entity—has been cleared, with ONGC giving its nod in January. ONGC is a stakeholder in six oil and gas assets in India along with Cairn India.
• The Supreme Court on Friday will hear a lawsuit that seeks to declare Vedanta’s $8.67 billion acquisition of Cairn India illegal.

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