As the minority stake holders are learnt to have played major role for the proposed Vedanta-Cairn merger, the fate of the deal is in the hands of monitoring and account division of the country’s largest insurer, life Insurance Corporation of India (lIC). Keeping Vedanta’s huge debt in view, the insurer will weigh all options before it goes ahead with the merger deal. The insurer said it would back off the deal if it finds something negative from the concerned department in its approval process.
“I am not sure about the approval, but it looks dicey because of huge debt of Vedanta ltd. The call will be taken by our monitoring and account department with its recommendations, followed by our Chairman’s final say for the merger approval,” a senior official of lIC told The Pioneer on Thursday.There are three different departments in investment division at lIC - monitoring and account, operation and risk management and research. Out of these three departments, monitoring and account wing plays key role in the approval process.
“lIC has become always an opportunist as far as money matter is concerned. If the monitoring and account wing concludes with negative remarks in its vetting process, then the approval chance becomes bleak and the company may back off the deal,” said the official.
The modus operandi of the merger process is that when any investment happens in the company, operation wing uses the process of the investment whatever has been recommended by the research counterpart to take a holistic view on that particular bond or equity paper to process for the investment decision making. Then it comes to the monitoring and account department for final recommendation. The committee of Managing Directors will give its recommendation. The committee may either accept or reject the proposal. Then it will go to the lIC Chairman for his final view on the subject.
There is a wide speculation that the proposed merger will fall if two largest minority shareholders - lIC and UK’s Cairn Energy Plc - together vote against Vedanta. The merger needs approval of at least half of the minority shareholders. lIC which owns 9.06 per cent in Cairn India is the second largest minority stake holder after UK’s Cairn Energy Plc which has to 9.82 per cent of shareholding. lIC also has a minority stake of 1.77 per cent in Vedanta.
Minority shareholders of Cairn, who have seen share prices almost halve to Rs170-180 in past one year on back of the company cutting exploration expense and falling oil prices, have criticised the offer of one Vedanta share and one 7.5 per cent preference share in Vedanta for every share they hold.
As the investment has already happened in the Vedanta-Cairn merger case, so the decision will be taken by the above said department and the approval of lIC for the deal will depend on percentage of lIC’s holding and how many minority shareholders are talking together and approve the same on a valid ground.
According to new rules laid by the market regulator, the Securities and Exchange Board of India (SEBI), minority stake holders participate in the voting during such merger process in which they have every right to vote out as per their own decisions.
“The matter will come to us at the time of annual general meeting (AGM) and we will take a view of it. As per the SEBI’s new rule, minority shareholders will also participate in voting. Suppose 75 per cent of shareholders comprise promoters themselves, then in that case the remaining 25 per cent shareholders will be minority ones. However, 75 per cent of those minority shareholders also need to approve the deal. We are waiting for the AGM notification to come from the promoters,” said the official.
In a move to gain support of minority shareholders like lIC, recently Cairn India and Vedanta officials met top officials of the insurance major to discuss about the deals and post-merger situation over valuations and debt.
Anil Agrawal-led Vedanta Group, which has proposed the Rs14,720 crore merger deal with Cairn, is struggling with huge debt of Rs37,636 crore, while its merger partner Cairn India has Rs16,867 crore of cash on its books. This mismatch asset position has led to concern among minority shareholders about the cash that will become part of the new entity.