Indian Petroplus

Management meetings have already begun with prospective partners at various places including London, where Agarwal is based. Talks are at an early stage and may not result in a deal, the people said, adding more suitors may emerge. Vedanta declined to comment. "Depending on the offers on the table, the promoters will take a final call on the quantum of stake sale, fundraise and valuations," an official directly involved in the negotiations said on condition of anonymity as the talks are still in the private domain. "Agarwal can end up raising far more to support CAPEX plans, overall deleveraging that is ongoing across the group. He needs capital." Vedanta is keen to replicate the Reliance-BP alliance model that started with specific upstream assets in the Krishna Godavari basin but became a far deeper and comprehensive tie-up spanning fuels to include oil and gas exploration and production, city gas distribution and fuel retailing. A sum-of-the-parts valuation of Vedanta's oil and gas division is pegged at Rs 20,000-25,000 crore ($2.85-$3.5 billion), according to analysts. Sources, however, said the company would seek a significant premium. BEYOND BORDERS Over the years Agarwal has expanded his global business empire through mergers, acquisitions, and restructuring of his diversified group that has interests in oil, iron ore, base metals, and power. But that has led to a stretched balance sheet. Setbacks in Orissa over a greenfield aluminum unit, the shutdown of its copper smelter in Tuticorin and a protracted legal battle in Zambia over the liquidation of Konkola Copper Mines have further led to cost and time overruns, severely crimping cash flows. Agarwal, known for taking risky bets, has also entangled himself into an expensive takeover battle over Anglo American. After the acquisition of Sesa Goa in 2007 and Cairn India in 2011, Agarwal veered his group towards a wider resource play. In 2013, Sesa Sterlite was formed post the restructuring of Vedanta Group's operating assets in India. Subsequently, Cairn India operations were merged with Vedanta in 2017 and got delisted. Currently, it is a 100% division of listed Vedanta Limited. OIL SPILLAGE Cairn has produced 189-kilo barrels of oil equivalent per day (kboepd) in the last fiscal year and has gross proved and probable resources of 1195 mmboe (million barrels of oil equivalent). A large portion of the hydrocarbon production of Cairn in India comes out from the inland field in Barmer, Rajasthan, its crown jewel. The Rajasthan field had 11 developing drilling rigs at the end of March 2019, and 99 drilled wells. The production sharing contracts (PSC) of Rajasthan and Ravva block have been extended for 10 years, subject to conditions. The company also has 41 blocks under the government's new Open Acreage Licensing Policy (OALP), thus making Cairn one of the largest private acreage holders in the country with 55,000 square km of total acreage. These blocks, in turn, have prospective resource bases of 1.4-4.2 billion barrels of oil equivalent. In FY19, the operating profit of the Cairn India was Rs 7,656 crore, which accounted for nearly 30% of the total operating profit of the Vedanta. Its consolidated gross debt was Rs 66,226 crore in FY19 as per the company's annual report, a gain of Rs 8,107 crore from the previous fiscal due to acquisition of Electrosteel Steels and temporary borrowing at Zinc India. However, the net debt stood at Rs 46,561 crore as of September 2019, as per Bloomberg estimates. The company plans to grow its production from the current 200 kboepd to 300 kboepd and aspires to achieve 500 kboepd productions, with reserves of three billion barrels of oil equivalent in the long term. In the last one year, the Vedanta stock has dropped 22% compared with a 13% appreciation of the Sensex. "The past few quarters have been that of operating misses for Vedanta as expansions have not ramped up in India zinc business, Gamsberg and India oil, and projects have been delayed," said Pinakin Parekh, an analyst of JPMorgan. There are other headwinds for Cairn as well. An ongoing Rs 10,247 crore tax litigation against Cairn Energy PLC over an internal business reorganization it did of its India business years back could dampen investor confidence. Despite its reserves and resources bank, the scope of expansion is regulated and it is largely perceived as a single production asset-heavy company. The delay in approvals lowers payoff and shrinks the net present value of the project. "The risk of slippage on the project and spate of regulatory risk on the policy side typically keep multinational hydrocarbon companies away from Indian hydrocarbon space. Also, with global oil consumption moderating in the last few years, MNC hydrocarbon companies have adopted a calibrated approach in their inorganic expansion globally," said a New York-based investment banking official specializing in the energy sector deals. The focus of these global giants has largely been to protect their future dividend income rather splurge on adding incremental reserve.