Vedanta Resources rallies on Cairn India merger reports

Shares in Vedanta Resources jumped nearly 5% as the company's response to media speculation that it could merge its subsidiary Cairn India into itself suggested there may be some truth to the stories.

In response to the press speculation, Vedanta Resources said on Tuesday that it is committed to maintaining its premium listing on the London Stock Exchange and “will make appropriate disclosures as and when required”.

Vedanta said that should a transaction with Cairn India proceed, it could potentially be considered a reverse takeover.

In addition, it said that in line with the group’s stated strategy to simplify its structure, the company continues to evaluate a transaction with the Government of India in relation to their minority stakes in Hindustan Zinc Limited (HZL) and Bharat Aluminium Company.

“If any of these transactions were to occur, they will in aggregate, as well as potentially the individual transactions between Vedanta Ltd and each of HZL and Cairn India on a standalone basis, be considered reverse takeovers,” said Vedanta.

According to reports, the two companies are in the final stages of discussions and the process could be completed by March 2016.

Vedanta Group has a stake of just under 60% in Cairn India, while Cairn Energy has a 9.8% stake in Cairn India.

Societe Generale said that such a move would give Vedanta access to the $2.7bn net cash held by its subsidiary Cairn India, and presumably help reduce debt at holding company level.

“If confirmed, today’s media reports would indicate that Vedanta is once again endeavouring to simplify the group’s corporate structure and ease its debt concerns,” said the bank.

“With Cairn India now also held liable for the disputed capital gains tax on Cairn Energy, this makes resolution of the tax dispute a common cause for both parties. We think that while the Indian tax dispute is ongoing, Vedanta is the only potential acquirer that would still see material value in Cairn Energy's stake in Cairn India.”