Cairn to Float India Unit
Cairn Energy plc on Wednesday announced a proposal to float its Indian business into a freestanding unit, Cairn India Limited ("Cairn India"), along with the approval of new share incentive arrangements and a notice of extraordinary general meeting. Highlights of the proposed action follow:
--Flotation of Cairn India creates two separate world class businesses in South Asia --Group to hold approximately 69.5 percent. of Cairn India immediately following the Flotation(1) --Price to be determined following a "book building" process to set the Offer Price for Cairn India's shares in December 2006 --Illustrative gross proceeds of US$1.8 billion based on the value for the Indian Business implied by the Cairn Energy PLC Closing Share Price(2)(3) --Part of proceeds to be used to fund the Group's ongoing business; balance to be returned to shareholders - further details to be provided following Flotation --New share incentive arrangements proposed for Cairn India and Cairn --Current trading in line with interim results statement --Circular in connection with proposed flotation of Cairn India posted to Shareholders today --EGM to be held on 17 November 2006.
Sir Bill Gammell, Chief Executive said:
"I am delighted to report today that we have posted our Circular to shareholders. This is an important milestone in our progress towards achieving a flotation of the Indian business at the end of this year. The roadshow for the pre-flotation private placing has now commenced. I firmly believe that a successful flotation is in the best strategic interests of the Cairn India business and will provide an opportunity to realize value for shareholders."
The flotation of Cairn's Indian business on the Bombay Stock Exchange and the National Stock Exchange of India is currently scheduled to take place in December 2006. In the meantime, due to the potential significance to the Company of the proposed flotation (and associated sale), the Company is seeking prior approval of Shareholders at an extraordinary general meeting.
Benefits of the flotation
The size of the main discoveries and the ongoing development in Rajasthan have significantly changed the nature of the Group's business in India, both in terms of value and scale and the Board believes it is now appropriate to realize part of the value of this business for shareholders.
Whilst the Group's Indian business is well-placed to take advantage of the potential growth opportunities in India, the Board believes that the proposed flotation should further enhance that business by:
- providing it with additional capital;
- increasing local autonomy and management focus;
- raising its local profile in order to position it more effectively; and
- creating a discrete, focused investment opportunity for investors.
Following the proposed flotation, there will be two arms to the Group's business: a majority shareholding in the listed Indian business and an exploration and production business (owned and operated by a wholly owned subsidiary of the Company, Capricorn).
Capricorn will focus initially on the Group's remaining assets in Bangladesh, Nepal and Northern India, but will additionally consider new material growth opportunities. The scope of Capricorn's activities in India (including Indian territorial waters) will be the subject of the non-compete agreement entered into with Cairn India.
The Board believes that the proposed flotation of the Group's Indian business presents the opportunity to create two separate world-class businesses in South Asia whilst at the same time realizing value for Shareholders through the sale of part of the Company's interest in its Indian business.
The Flotation, as currently proposed, involves two principal steps. Firstly a new company, Cairn India, will be floated on the Bombay Stock Exchange and on the National Stock Exchange. Secondly, in conjunction with the Flotation, the Group will dispose of its Indian Business to Cairn India in exchange for cash and the issue to the Group of a majority shareholding in Cairn India.
The Offer Price set for Cairn India's Shares in the Flotation will determine the value of the Indian Business for the purpose of the Disposal. The Offer Price (and accordingly the amount of money to be raised in the Flotation) will be finalized following a "book building" process. It is expected that the Offer Price will be announced by the Company in December 2006.
The final amount of the consideration due to the Group from the Disposal will be determined once the Offer Price has been determined and will be a mix of cash and Cairn India Shares. The Board intends to set the lower end of the price range for the "book building" process at a price per Cairn India Share (the Offer Price Range Floor) that places an expected minimum pre-Flotation valuation on the Indian Business of approximately Rs 235.5 billion(4) (£2.7 billion), which, in the Board's view, is the value for the Indian Business implied by the Cairn Energy PLC Closing Share Price.
Accordingly, by way of illustration, if the Offer Price were to be set at an amount equal to the Offer Price Range Floor and Cairn India was to retain funds amounting to Rs 27.1 billion (£316.3 million) from the expected gross proceeds of the Flotation of US$1.8 billion (or approximately US$1.9 billion in the event that the Over Allotment Option is exercised in full) to fund its ongoing working capital requirements, then it is expected that the gross cash proceeds of the Disposal which would be received by the Group would be approximately Rs 53 billion (£618.0 million) (or approximately Rs 59 billion (£688.4 million) in the event that the Over Allotment Option is exercised in full) and that the Group would hold approximately 69.5 percent. of the issued share capital of Cairn India immediately following the Flotation (or approximately 67.2 percent. In the event that the Over Allotment Option is exercised in full).
The Offer Price and the proceeds of the Flotation to be retained by Cairn India to fund its ongoing working capital requirements have not yet been determined and accordingly the gross cash proceeds of the Disposal and the proportion of the share capital of Cairn India to be issued to the Group may be different from this illustrative example.
Use of proceeds
If the Flotation and the Disposal proceed, the Board intends to utilize part of the net cash proceeds to fund the Group's ongoing business, with the balance being returned to Shareholders. The Board intends to return this cash to Shareholders in a manner which will seek to be as tax efficient as practical and seeks to meet the differing tax and accounting requirements of Shareholders.
Further details on the proposed return of cash will be communicated to Shareholders after the Flotation becomes effective.
Shareholders should note that the proposed return of cash is not guaranteed and that the amount and the timing of any cash return and the means by which it is to be achieved have not yet been determined.
Strategy of the Group following the Disposal and the Flotation
Following the Disposal and the Flotation, the Company will own a majority shareholding in Cairn India. The Company will also continue (through Capricorn) to undertake oil and gas exploration and production.
If the Disposal and the Flotation proceed, the Group's principal focus will be to continue to pursue, through Capricorn, its proven strategy of building Shareholder value from strategic positions in what the Board believes to be high potential exploration acreage. In addition, the Company will continue to look at ways in which it can seek to maximize value for Shareholders from the Group's remaining majority shareholding in Cairn India including, subject to the restrictions imposed by Indian regulations and law, through the sale of its Cairn India Shares.
In addition, the Board will continue to review and consider strategies and structures to maximize Shareholder value going forward, which may include asset realization, asset related capital structures or direct Shareholder participation in the two arms of the Group's business.
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