Cairn said the money has been lent on commercial terms.
Cairn India has decided to extend its loan of about USD 1.2 billion for the period of 2 years to its parent Vedanta. This intra-corporate transaction has raised many eyebrows. Concerns are being raised over the utilization of cash and even on corporate governance.
Also Read: Cairn's $1.25bn loan to Vedanta: 3 key questions unanswered
Cairn has expressed that the money is being lent on commercial terms, however, in its first formal statement the company said that "they have entered into a facility of USD 1.2 billion with the 100 percent subsidiary of Sesa Sterlite and of this USD 800 million has already been dispersed during the quarter".
Sources indicate the approval has come from the audit committee for this arrangement. But was shareholder approval taken? There has been no concrete answer to that. However, off the record, sources said that the company may not be required to take a nod, but legally how tenable it is needs to be ascertained.
The company in its statement said the entire facility is at arm's length. The loan has been extended for 2 years at floating rate of 3 percent plus LIBOR, which is the market rate. Cairn has a capex of USD 3 billion and that has been taken care of as the company has been generating cash of USD 1.5 billion every year, plus they have cash reserve of nearly USD 3 billion. Thus, there's no issue with respect to cash going out.
Cairn India stock price
On July 23, 2014, Cairn India closed at Rs 345.70, up Rs 2.20, or 0.64 percent. The 52-week high of the share was Rs 385.00 and the 52-week low was Rs 286.85.
The company's trailing 12-month (TTM) EPS was at Rs 39.77 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 8.69. The latest book value of the company is Rs 206.73 per share. At current value, the price-to-book value of the company is 1.67.
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