Cairn falls over £1bn Indian tax
FOUNDER and former boss Sir Bill Gammell stepped down as chairman from Cairn Energy a year ago when the spectre of an unresolved tax dispute in India continued to hang over the company he founded more than 30 years ago.
Alarm bells have now been sounded and the shares have been scraping the bottom of the barrel after the Indian government claimed it owes £1.059bn in historical taxes relating to a 2006 restructuring that saw Cairn reduce its stake in the Indian venture to 10pc.
Announced after-hours on Tuesday, the fine is much larger than the value of the entire company and so sparked an avalanche of nervous selling. The shares, which in 2005 were changing hands just shy of £19, were aggressively sold down to 141.3p before closing a further 28.4p or 15pc lower at 155p.
Cairn has been forbidden by the Indian authorities from selling a residual 10pc stake in former subsidiary Cairn India worth about £630m, as they investigated its tax affairs. Any hope Cairn had of selling the stake in the short term has now been dashed.
Nevertheless, Cairn’s balance sheet is strong with £576m in cash at the year-end plus the undrawn £381m debt facility, which underlines it is able to support its planned spending even if the remaining £630m Cairn India equity stake remains restricted by the ongoing tax dispute. Cairn sold down £3.6bn of its Indian oil assets in December 2011.
Cairn made its name in 2004 after making a huge oil discovery under the sands of Rajasthan in North-West India in fields it had bought from Shell. The block was found to contain 1.1bn barrels of oil. Investors piled in but in recent years have been acutely disappointed after its exploration activities in Greenland failed miserably to match overthe-top expectations.
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