Global Economics

Cairn India Raises $650 Million in Share Placement


The subsidiary of Cairn Energy issued shares to Malaysia's Petronas and Singapore investor Orient Global in a deal that depressed Cairn India's share price on the local bourse

Cairn India has raised $625 million through a private placement of 1.13 million shares to Petronas and Orient Global Tamarind Fund. Petronas and Orient Global will buy shares at a price of Rs224.30 ($5.55) per share. The issue price represents a marginal half percent premium to the average closing price of Cairn India on the National Stock Exchange on the last two trading days, March 13 and 14.

Cairn India said in its stock exchange filing that it will use the proceeds to fund capital expenditure and for general corporate purposes. Citi advised Cairn India on the share placement.

Petronas is wholly-owned by the Malaysian government and owns petroleum resources in Malaysia. Orient Global is a Singapore-based private investment institution founded by Richard Chandler.

Petronas will subscribe to 63.3 million shares and will increase its stake in Cairn India to 12.7%. Petronas has been an investor in the company since November 2006 when it was the largest investor among a consortium of strategic and financial buyers to purchase shares in a placement while Cairn India was still mostly a private company.

Orient Global is buying 49.7 million shares and will own 2.6% of Cairn India. Petronas and Orient Global have agreed they cannot sell their shares for one year. The issuance of shares is subject to shareholder approval at a meeting which has been scheduled for April 16.

"Cairn India is confident of producing first commercial oil from Rajasthan in 2009," says Rahul Dhir, Cairn India's CEO, in a written statement. "The private placement will help the company towards meeting its investment plans and provide greater financial and operational flexibility."

London-listed Cairn Energy incorporated Cairn India in August 2006 to consolidate its business interests in India. Cairn Energy's ownership interest in Cairn India will fall to 64.86% after the issuance of new shares to Petronas and Orient Global, from the 68.99% it currently owns.

Cairn India is engaged in oil exploration and production in India where it has a working interest in 14 blocks, two of which are producing hydrocarbons. The company also owns exploration and production positions in west India and east India along with new exploration rights elsewhere in India. Cairn made a major oil discovery in Rajasthan at the beginning of 2004.

Cairn India raised $1.93 billion through an initial public offering of shares in December 2006. The IPO coincided with some nervousness in Indian stock markets and also suffered lacklustre demand due to some uncertainties about Cairn India's contractual agreements. The result was that the IPO scraped through barely garnering full subscription and was priced at the lower end of the Rs160-Rs190 range indicated by bookrunners ABN AMRO Rothschild and DSP Merrill Lynch in pre-marketing. Cairn India opened trading in January 2007 at Rs149 and lost 14% in first day of trading to close at Rs137. It has since recovered and has been trading above Rs200.

Cairn India closed at Rs214 on the Bombay Stock Exchange on Monday, down 6% as investors were disappointed by the news about the company's proposed capital increase.

However, the fall mirrored prevailing sentiment on Indian bourses as the broader market index, the Sensex, also lost around 6%. Investors followed global cues and subprime contagion spread following news over the weekend about the takeover of Bear Stearns by JPMorgan at a price of $236 million, representing $2 a share. The deal is widely perceived as a fire sale as Bear Stearns closed trading at $30 a share on Friday, despite losing significantly during the course of the week's trading.

Asian markets all traded down yesterday as nervousness ran high about which other banks could be at risk.

Anand is a writer at FinanceAsia.com .

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