Metal and mining giant Vedanta Ltd and its subsidiary oil explorer Cairn India will merge in an all-share swap deal, giving the parent access to Cairn's $2.7 billion, or about Rs.17,000 crore, cash pile that would help it reduce debt.Independent directors of both the companies, owned by billionaire Anil Agarwal, have approved the merger.
Each minority shareholders of Cairn India will receive one equity share of Vedanta and one redeemable preference share of Rs.10 face value with 7.5% annual dividend.
“The merger consolidates our position as India's leading diversified natural resources champion, uniquely positioned to support India's economic growth,“ said Agarwal, chairman of Vedanta Plc, which owns 50.1% stake in Vedanta Ltd. A diversified portfolio from metal to oil exploration will help Vedanta derisk earnings volatility in an economic slowdown, allocate capital to projects with better returns, build a stronger balance sheet and lower overall cost of capital.Existing Cairn India shareholders will get exposure to metal and mining assets and better shareholder returns.
Access to Cairn's cash pile will help Vedanta repay part of its gross debt of Rs.77,752 crore, and improve its leverage ratio.
Analysts expect an improvement in the firm's balance sheet due to the merger although there may not be any impact on its earnings per share.
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