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| Cairn India |
You wouldn’t have so much talk about an open offer and it being very successful unless the deal has gone through. This was the reason why Cairn was under pressure. It was a bit of a question mark and now it has been solved. Petronas is looking to tender it, but it is not doing directly.
It is going to open up a book and offer its 15% stake to institutional investors. They will pick the stake up from Petronas at whatever price they quote and will tender in the open offer and garner whatever money they can as a differential between the two. Now there is a possibility that Petronas is doing this because it wants to avoid tax and this is a tax efficient way of doing it.
So rather than tendering it in the open offer directly, you could have institutional investors pick the stake from it and tender in the open offer. What this does to the retail investors or people who have minority stakes is that their break-even goes down. This is because now, it is 15% additional liquidity in the market which will also be tendered in if the price is attractive.
Of course, the price right now, Rs 355 or Rs 350 is pretty close to the open offer price. So you don’t know how many people will want to tender it giving that Brent is at the level where it is. The other question mark will be whether royalty is going to be cost recoverable.
If royalty does not turn out to be cost recoverable, then Cairn could be headed much higher. That could definitely be a positive. If royalty is cost recoverable, there is downside for Cairn. So keep your eye out for the question whether royalty is cost recoverable because on it hinges all the other issues regarding this deal.
Sources: http://www.moneycontrol.com
