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I think everyone is still referring to the old news regarding India offering $300 MN as part of settlement.
This is the latest news on negotiation I.e. India has offered over a $1bn, still not satisfactory ;
"Meanwhile, CNBC-TV18 has learnt from sources, who didn't wish to be identified, in the finance ministry that the government is considering to pay back Rs 7,600 crore and is also assessing the implications of such a move.As Cairn Energy approaches various international courts to attach Indian assets abroad, the finance ministry sources indicated that the government is considering an amicable solution to payback Rs 7,600 crore to Cairn Energy.According to the sources, any payment to the company will be without interest and penalty and currently, the government is discussing the matter with Cairn Energy. They said India is waiting to hear back from the company.
https://www.cnbctv18.com/videos/legal/retro-tax-row-govt-considers-paying-back-rs-7600-crore-to-cairn-energy-assessing-implications-of-such-move-say-sources-9926911.htm/amp?__twitter_impression=true"
Agree. And not a want. But I bought down here and think any cash award at £200-300m level + rewards shareholders in at this crazy price.
That's why I'm a shareholder. I'm trying to convey that wanting to sell something for a pittance because it isn't reflected in the share price is not good thinking.
Now if you think 20p is a good price and Cairn will wait for years to get a higher amount from anyone else than that's a different story and fair enough.
I'm trying to convey the share price is not reflecting the India money.
The cash pos + assets could justify this pos. Add £200-300m in cash and it's crazy cheap. Add £1.7bn and well...
It's worth a lot more than that with an international arbitration ruling behind it - even if they end up doing a deal with India to write off the damages and interest. The good thing is they aren't the only company going after Indian assets overseas and it will make things very difficult for India if they have to look over their shoulder all the time - especially if the Air India case goes against them and it is deemed that it is part of the government, meaning planes could be seized wherever they land (it could still be deemed that is a separate entity run independently of the government, even though it is the national airline). It all depends on whether India want the hassle or not, as to how far they fight it and how much they are prepared to back down.
If the shares fall to 110, would you advocate selling it for 10p in the £? What about if they rise to 150, would you then want 30p in the £? It's a silly way of thinking.
The money due from India is the reason to be bullish here. If only 20% of that money is received then it's just a risky E&P rather than a special situation with a good margin of safety.
Even the Indian government offered them more than that after the ruling by asking Cairn to participate in their Vivad se Vishwas scheme.
The market is currently valuing it at 0p in the £, so anything would reward shareholders.
Sell it for 20p in the £? I don't think so.
Nice result this morning.
Sell the debt for £200-300m and move on. That's half the mcap and shareholders can reap from the rest of the assets and futue investments.
Seav also a good post I would bet on CNE selling on the debt at a discount. At these prices and with oil prices where they are CNE looks a buy to me but as you say DYOR.
Good post 34.
A few things you missed ;
1. CNEs award is as good as a sovereign bond minus the liquidity. CNE will aim to reverse the write off /impairments on this amount I.e. It might soon come back on the balance sheet as an asset - hopefully September results will have some info on getting the contingent asset valued and back on the balance sheet. Monetization of this award will also give a good boost to the already strong balance sheet.
2. This award is accruing interest as we speak. Currently my guess is that the award stands at $1.76-$1.78 bn at end June 21 as opposed to $1.72 bn at year end 2020. End 2021 it would very well be $1.8bn.
3. Tax might have to be deducted on the recovery amount(20%?). Although tax was not due back in 2014 when CNE was trying to get back the amount to uk so CNE would want the full amount with interest so as to offset the tax charge on the recovery amount imo.
4. Not sure if enforcement legal costs can form as part of the overall value of the award. Maybe a reason market might be worried about the legal costs or one of the IIs being nervous and selling down their position.
From news reports it felt like CNEs been discussing the award options with the big IIs shareholders of CNE and maybe some or one of them didn't like the options presented to them by CNE whether of recovery value or timeline of recovery or percentage of recovery. Or simply they might not be happy with the change in direction with Egypt acquisition and possibly further acquisition in a high risk region. Just some narratives regarding possible reasons for recent share price weakness.
Anyway as you say there could be news any day regarding a possible settlement with India or an Rns saying CNE has decided to monetize and sell the award to a recovery hedge fund or third party. Plus a possibility of a new acquisition.
All imo dyor
I agree it looks like India will loose the appeal.
Then what are their options?
1. Don't pay even after losing appeal.
I don't know the full implications of this.
I don't know if a Country can the thrown out of the International arbitration scheme for ignoring rulings? If this could happen the implications would be grave for India as being a signatory to the International Arbitration scheme is no doubt a must be for most if not all international investment in India.
If you cannot get thrown out for non-compliance then presumably Cairn will continue court action to get possession of and then sell off Indian Govenment assets throughout the World. Apart from the embarressment the ramifications of the Indian Govenment not being sure if it can retain ownership of buildings/planes/ships I presume would be massive. What about loans secured against these assets? What about the people who may live in the buildings, who's jobs are on the ships? What about businesses that may rent office space in the buildings? Basically it seems to me there would be very serious doubts about everything the Indian Government currently owns outside India. I mean, will they still own the asset next week/month??
2. Pay negotiated amount.
I think this is what the Indian Government will try to do, believe it or not. I think they KNOW they wil probably loose the appeal, but are stringing this out as long as possible. But they have a problem. Some of Cairns major share holders are truly massive international investment houses who will want the full amount. When a court orders you to pay x amount it is not subject to negotiation. Also they do not want to set a precedent. I think the best the Indian Government can hope for is a commitment from Cairn that it will invest the money in India, something they already suggested and the Indian Government rejected!!!
3. Pay the full amount ($1.7 Billion).
This might put international investors concerns at bay, but is it too late?
All the ramifications of not paying would presumably disappear.
I only see them doing this if, for instance, cairn wins the court battle in the USA about Air India assets and the planes are grounded, before being sold to repay the debt.
All IMHO.
I have come to a few conclusions:
1. India has 0% chance of a successful appeal.
2. India has two ways to defend itself against asset seizures: Invoking sovereign immunity and claiming the assets are independent of the Indian Government. The sovereign immunity argument can protect assets like embassies but won't protect much else. The argument that assets are independent of the Indian government is potentially more of a problem for Cairn. It's a way to protect state owned enterprises like Air India and Shipping Corporation of India. We need to establish in court that they are an 'alter ego' of the Indian government. That really depends on the amount of control India has over those companies and their day to day operations. From what I've read it's a high bar to prove it but there's lots of evidence on our side. The flats in France seem like low hanging fruit. AFAIK they're directly owned by the Indian Government and a sovereign immunity defence won't work.
3. This situation is very bad for India, and it will continue to be very bad until it is resolved. Any assets outside India will always be at risk. They won't be able to conduct their affairs in a natural way because multiple parties will try to get courts in dozens and dozens of countries to freeze them and they'll be continually sucked into litigation, most of which they will end up losing. That creates hassle, costs and damages India's image.
4. I don't think India will ever voluntarily pay the entire amount. It's an ego thing. They're too far down the rabbit hole to admit they've screwed up so badly. We'll either have to negotiate and accept a somewhat lower amount or forcibly recoup our money.
5. Forcibly recouping our money doesn't necessarily mean confiscating assets and selling them. If we get an order against Air India in some big countries we could essentially shut down the airline because if any planes land in the country they can be seized.
5. During the arbitration proceedings, Cairn claimed that they would probably have to pay UK corporation tax on money received due to the ruling and they argued that India should have to provide money to cover that tax cost. The arbitration court didn't allow that because they said Cairn hadn't sufficiently proved that tax would be due. I'm guessing it probably will be. We could offset some of that with the accumulated UK tax losses but I don't know how large those are. Might that be part of the reason why the UK assets have been sold, to preserve the losses so they can be soaked up by the India payment?
6. I think the Indian finance minister knows they're in a terrible position but can't say it. By hook or by crook I think we'll end up recouping 80%+ of the $1.7B we're owed. Given that, I think the shares are very cheap. I think we'll wake up one day and they're massively up, either due to a big court ruling or a settlement agreement.