Cairn ltd today said it has extended by two years the repayment of a controversial USD 1.25 billion loan it had extended to its parent group firm. The extension follows delay in merger of Cairn India with its parent Vedanta Ltd that would have led to the USD 1.25 billion loan being written off. “Cairn India Holdings Ltd (CIHL), an overseas subsidiary of Cairn India Ltd, has decided to extend maturity of the loan of USD 1.25 billion, which was given for a term of two years in May, 2014, to THL Zinc Ltd (TZL), an overseas subsidiary of Vedanta Ltd, for a further period of two years,” the company said in a filing to the stock exchanges.
The company said the extension was “on arm’s length at a revised rate of interest of LIBOR + 450 basis points (bps) in the first year and at LIBOR + 475 bps in the second year as compared to the existing rate of LIBOR + 300 bps.”
The loan had become controversial in 2014 as Cairn had not disclosed extending of loan to its new parent Group. It came to light only in the analyst call in July 2014 but not before USD 800 million out of the total loan of USD 1.25 billion had already been disbursed.
The request from THL Zinc for a rollover too was revealed during an investor call following fourth quarter results last month. Cairn India CFO Sudhir Mathur had at the conference call stated that a committee of independent directors would be going into the details of this rollover request including revision in terms.
Today, the company said the rollover “is on terms that are market standards including change of control provisions and will continue to be secured by a guarantee from Vedanta Resources.” “The return from the said loan will provide higher yield to CIHL compared to the return it is earning from its existing investments out of its cash and cash equivalents, which are in USD,” the filing said TZL is the holding company of the Vedanta Group’s international zinc business that comprises of assets in South Africa and Namibia.
In September 2015, London-listed Vedanta Resources Plc, the parent firm of Vedanta, said the USD 1.25-billion loan was used to repay USD 800 million of principal and USD 450 million in interest on another inter-company loan.
In June last year, it proposed merging Cairn India with Vedanta Ltd. If the proposed merger goes through, it could mean that the USD 1.25 billion loan is written off.
Cairn had a cash balance of Rs 19,500 crore at the end of March 31, 2016. In 2014, it had used its cash to buy back shares that helped Vedanta gain greater control of the firm. It bought 36.7 million shares for Rs 1,225 crore and extinguished them, resulting in promoter shareholding rising from 58.76 per cent to 59.90 per cent. Vedanta group shareholding would have gone up to 64.53 per cent, had Cairn been able to buy all the 170.9 million share it had intended to buy back for up to Rs 5,725 crore. It could not as Cairn share traded higher than Rs 335 offered.