Cairn gives Vedanta 2 more years to pay back $1.25-bn loan
Cairn India has extended the repayment period for a $1.25-billion loan to a group company by two years but at a higher interest rate.
The loan was given for two years in May 2014, to THL Zinc (TZL), a foreign subsidiary of Vedanta, the parent entity. Cairn India Holdings (CIHL), a subsidiary abroad of Cairn India Ltd, has decided on a two-year extension, the BSE was informed.
A CLSA report had earlier suggested Cairn India seek a clarification from the Securities and Exchange Board of India, since the loan comes under Section 49 of the latter’s listing agreement rules which applied from October 2014, after the loan was granted), and as the loan crossed the threshold set by the clauses for a shareholder vote.
A person close to the development said shareholder approval was not required since the transaction did not come under the norms in this regard, with both the companies being foreign entities and not listed in India.
The loan extension is on an ‘arm’s length’ basis, at a revised rate of interest of Libor plus 450 basis points in the first year and at Libor plus 475 bps in the second year (compared to the existing rate of Libor plus 300 bps). It is on terms that are market standards, including change of control provisions, and will continue to be secured by a guarantee from Vedanta Resources Plc, said the company.
The return from the said loan will provide higher yield to CIHL, compared to the return it is earning from its existing investment out of its cash and cash equivalents, which are denominated in dollars, it added.
TZL is the holding company of the Vedanta group’s international zinc business, with assets in South Africa and Namibia.
Cairn India reported a historic quarterly loss of ~10,948 crore last month for January-March 2016. It also undertook an impairment of ~11,674 crore for the full year ending March 2016. The continued fall in crude oil prices has pulled down its performance.
The company closed 201516 with a loss of ~9,432 crore and a normalised profit after tax of ~2,145 crore, compared to ~4,480 crore profit the previous year. The company had also taken an impairment of ~505 crore last year in the fourth quarter on account of its Sri Lankan assets.
The company’s realisation was down 42 per cent to $28.2 a barrel of oil equivalent, compared to the quarter ending March 2015. It was almost $41 for 2015-16, a 46 per cent fall over the previous year.