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Financial Times: Petronas snaps up 10% stake in Cairn India

By Ed Crooks in London: Published: November 24 2006 02:00 | Last updated: November 24 2006 02:00

Cairn Energy, the UK oil group, has sold 10 per cent of its Indian business to Petronas of Malaysia at a higher-than-expected price, raising the value of a planned initial public offering next month.

Cairn now expects to raise about $2.2bn (£1.15bn) from the sale of 30.5 per cent of Cairn India, more than the $1.8bn it had originally estimated.

The UK oil group is raising $822m by placing almost 12 per cent of the business, with 1.9 per cent of the new company available to Indian and international institutional investors.

It implies a total value for Cairn India of about $6.9bn, more than 30 per cent above the previously indicated minimum value of its listing.

Cairn said pre-placing of some shares was a common practice in India ahead of a float to help in setting the price.

If the price turns out to be less than the Rs176.48 a share being paid by Petronas and the other investors in the placing, the price to them will be correspondingly reduced. Cairn Energy closed 2.1 per cent higher at £19.70.

Petronas, Malaysia’s national oil company, which is wholly owned by the government, said it viewed its shareholding in Cairn India as “a long-term, supportive investment” and said it “hopes to build a positive and constructive relationship with the management of Cairn India in the future”. It said it had no intention of increasing its stake. Petronas invested $1.1bn in Rosneft, Russia’s biggest oil company, when it was floated this year.

Following the placing, there will be about 18.6 per cent of the company available in the public offer. From the likely proceeds of about $2.2bn, $600m will be retained in Cairn India and the rest returned to Cairn Energy, which is expected to pay out a special dividend early next year.

Cairn India’s business is based on oilfields in Rajasthan, bought from Shell, which are set to transform it into a leading producer and one of India’s biggest companies. It is being given a separate float partly to establish it as a clearly Indian business, with Indian investors and an Indian chief executive.

Sir Bill Gammell, Cairn Energy’s chief executive, will be non-executive chairman of Cairn India. He said yesterday: “We are delighted to have gained such substantial backing for our pre-flotation placing. The positive response confirms our belief that this is the best strategy for Cairn to develop and grow our world-class business in India.”

The company expects oil output from the Rajasthan field to reach 150,000 barrels a day.

Mr Gammell said Cairn had spent about $2bn in India in the past 10 years and plans to spend $1.5bn in the next three.

The placing was co-ordinated by Merrill Lynch and ABN Amro Rothschild.

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