After victory in the Indian tax dispute, Cairn faces a $1.4 billion payout

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Via Scott Wright

After the company secured a $1.4 billion win in its protracted tax dispute with India, Cairn Energy investors enjoyed an early Christmas gift last night.

It was the second major boost in less than a week for shareholders in the oil and gas giant headquartered in Edinburgh, with investors also taking part in a dividend of about $250 million following the sale of their Senegal business to the Australian group Woodside

For 400 million dollars.

At the culmination of a dispute with the Indian government that lasted back to 2014, Cairn was paid $1.2 billion (£890 million) in compensation, plus interest and expenses estimated to be about $200 million.

At the time, Cairn faced a tax demand of $1.6 billion from the then Indian government in connection with events leading up to the company’s former subsidiary’s IPO in India in 2006.

At that time, the Indian government froze Cairn’s interest in the subsidiary, which had decreased to a 10 percent stake by then, and pursued its claim under new retroactive tax laws.

Cairn has repeatedly reported to have paid all taxes due in India and has obtained compensation from the Indian government for more than $1.4 billion.

Cairn announced yesterday that the international tribunal in the Netherlands, formed in 2018 to rule on his claim under the terms of the bilateral investment treaty between the United Kingdom and India, had ruled in his favor.

In its favor, ruled.

The tribunal, which heard cases under the Registry of the Permanent Court of Arbitration, ruled unanimously that, under the UK-India Bilateral Investment Treaty, India had violated its obligations to Cairn.

For Cairn, the result is important, as seen by the scale of the payout compared to the market valuation of the firm of approximately £ 1.2 billion.

Simon Thomson, Cairn’s chief executive, had previously said that it might make substantial payments to investors if the company wins the case.

The Legal Battle Wins.

In order to invest in more investment and exploration opportunities, the company may also use the windfall.

The ruling is definitive and binding and can not be appealed further since the international tribunal is the highest court at which the case can be tried.

Throughout the case, Cairn was in close touch with the British government, the Foreign and Commonwealth Office and the Indian High Commission, and representations on the topic of payment are assumed to be on the agenda when, as part of India’s national day, Prime Minister Boris Johnson visits India on Jan. 26.

“In a broker note, James Thompson, an analyst at JP Morgan Cazenove, said, “The decision can not be contested. The award payment is due immediately, but the duty to pay now rests with India, and hence we expect Indian government confirmation that payment will be made in the near future (we note that British Prime Minister Boris Johnson is expected in Delhi on January 26, 2021).

This news is undeniably positive for Cairn Oil, and while the risk of the physical payment remains, we expect the shares to respond very positively to the news today before the payment is made.

“We also note that the Senegal transaction has been completed with the funds received from Woodside, meaning that the announced dividend is fully covered by cash on the balance sheet.”

Broker Stifel also addressed the issue of when Cairn should expect to receive a check.

Given the nature of both this award and the related judgment in September relating to the arbitration against Vodafone India (which, however, did not include asset seizure, unlike the Cairn India case), we would expect India to explore all practicable remedies before accepting the ruling, making the timing of the seizure of assets

It is highly unclear if an award will be issued.

Last week, Cairn said that, after completing the sale of its Senegal business, it will pay a special dividend of 32 pence per share.

Shares in Cairn closed at 202.6p, up 36.7p, or 22.1 percent.

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