Cairn India Ltd has allocated USD 1 billion to buy back shares, according to two sources interviewed by Bloomberg. The share repurchase will give billionaire Anil Agarwal more control of his oil firm as his mining business Sesa Sterlite contends with environment rule restrictions, the people added.
One of the sources said Cairn India will offer to repurchase the shares and extinguish them. The buyback plan includes the 10.3% stake held by Cairn Energy. He added that the buyback will aid Agarwal's other firms like Sesa Sterlite to bolster their ownership of Cairn India to over 65% from its current 59% stake. The people spoke on the condition of anonymity before an official announcement is given. Citing an exchange filing, a Bloomberg report said Cairn India's board will give a decision about the share repurchase tomorrow.
In a phone interview with Bloomberg, Singapore-based analyst at Moody's Investors Service Alan Greene said, "Certainly Cairn Energy's 10 percent stake in the company will be a natural source of shares. Cairn Energy's decision to sell will depend on what the offer price is and its own needs." He added that the buyback reinforces the position of Sesa Sterlite in the company and that a repurchase is an effective method of utilizing cash.
Cairn India operates the largest onshore oil and gas field in India. It has an estimated USD 3 billion of cash. It now plays a critical role for Agarwal as metals earnings at Sesa Sterlite are being challenged with restrictions set on the mining of iron ore and bauxite, the report said. Goa has also set an export ban on the ingredient used for making steel. With these challenges, Agarwal is now looking to capitalize on the growing energy demand in the country which is predicted to grow 14% in the next few years, the Bloomberg report added.
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