34a - it doesn't matter what we PIs think. It's mostly the IIs that CNE will consult for the way forward. Most of us PIs are here just for the award and I'm guessing have recently bought in. Maybe there are some IIs who've been holding since 2014 debacle and they might want to milk it fully? Or alternatively they might choose to take the amount and move on? It all depends I suppose what the big IIs think as CNE has always consulted with them for the way forward. It has been reported that some IIs had also written to the Indian government on behalf of CNE.
Anyways this situation is a good problem to have. Imo
The whole reason for this change to law that India has bought in is because CNE got seizing orders from French courts. It seems unfair that CNE did all the heavy lifting in terms of fighting in the courts and the law is amended for all other companies as well.
From todays short RNS cairn didn't seemed pleased by this law amendment.
India is not like Venezuela, it has a lot of liquid assets outside India which can be seized and realized. If ConocoPhillips can recover 50% of its $1.5 bn arbitration award in two years from Venezuela who barely has any assets abroad vs the creditors, CNE should be able to recover a lot more than $1bn that India is offering today?
Options I think CNEs should consider ;
1) Go on with the enforcement process and try and seize air India planes worth a few $100 mn (although could take long) and then go and settle with India I.e. Recover $300mn or so by seizing assets and then take the offer up with India. It will be humiliating for India to say the least.
2) Try and monetize /sell the award to a debt recovery experts/funds if they can stump up more than what India is willing to pay I.e. At least $1.2bn. That way CNE might get say $1.3 or $1.4bn but the recovery experts will go after Indian assets to get the full award of $1.75 bn with a floor price of the award being at Indian government offer.
It's definitely not a fair solution to accept $1bn and forego $700 mn in costs, interest after so many years and humiliation that CNE went through? There is a matter of tax on the proceeds, which is against a hugely depreciated rupee.
All IMO
Rags - you are missing other important aspects. According to the broker note I posted earlier, the risked NAV for cne is £ 1.70. How much would the award be in it?
Irrespective of that, you have not taken into account the exploration discovery few days ago and other upside aspects of uk and Senegal assets. Plus possibility of another acquisition that CNE referenced in the earnings call.
For cne, $0.5 bn interest is too big an amount to leave on the table.
All IMO dyor
The risked NAV for cne was estimated as £1.70 per share just yesterday?
Cairn Energy Seen as Facing Risks Despite Transformation
0933 GMT - Having moved to strip out Cairn Energy's soon-to-be legacy U.K. production assets, and incorporated the new Egyptian portfolio that is being acquired from Shell, Peel Hunt resumes coverage of the FTSE 250 oil-and-gas company with a hold recommendation. These deals will turn Cairn into a new company, offering more visibility on production growth and a broader portfolio of reinvestment opportunities, the brokerage says. However, to acknowledge the various risks to delivery that still lie ahead for Cairn, Peel Hunt sets the target price at 130 pence a share--lower than the 172 pence implied by its risked net-asset-value estimate of GBP857 million.
https://www.morningstar.com/news/dow-jones/2021080411718/ftse-100-rises-on-positive-services-data-corporate-earnings
Because CNE this has been achieved. And the new legislation says that they will not be paying any interest or costs and the demand will be nullified only if CNE etc. Will withdraw all litigation.
Tricky situation for us if to go after interest,costs etc. Or just principal? Doesn't say clearly if they will give back $1.2 bn equivalent or 7600 cr which is lot lower than $1.2 bn?
https://www.moneylife.in/article/no-retrospective-tax-as-govt-brings-in-new-amendment-big-relief-to-vodafone-cairn-energy/64768.html
Bp and rdsb took on debt to pay dividends to shareholders. Surely shareholders should ask CNE to buy back shares given the sp decline? £100 mn can buy back more than 60 million shares - can CNE take on debt to do that and then pay it off by the award monetization or use cash?
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"
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
And CNEs outperforming the likes of Tlw enq to the downside given it didn't outperform like them to the upside!
Given the margin of safety for a sp anywhere under 180p, the dislocated alpha in CNE is really puzzling unless a current II wants out at whatever price. Post recent share consolidation it's even starker, given the shares in issue which has gone down to 499mn from 590mn - so any award return would be that much bigger on a per share basis. A lot of IIs might be here for the possible big award value return - just like most PIs. It's low risk with a possibility of 100% + return which dwarfs even the likes of high leveraged plays like enq, Tlw or genl gkp.
All IMO
Whitehat - "I voted against is but I doubt my 0.2% of the company ..."
Did you mean 0.02%, given the amount of the total shares that voted against the acq. were just 436,355 ? 0.2% of the company would be close to 1mn shares.
Looks like almost all IIs are onboard with the acquistion, and the ones that are not seemed to be exiting given the drop in the sp from £1.70 levels?
L3/Whitehat - I'd advice to give the July acquisition circular a closer look. It's got good details about revenues that will be due to Cairn from the asset.
Also the $ 140 mn cash flow is the average value across the 3 years but 2019 had drop in production vs where CNEs aiming to get the production upto. One big benefit of this deal is that all the capex is self funded from the acquisition itself. And the maximum capex per year as shown in the June analyst presentation does not exceed $90-100mn. And even at that maximum capex level of $100mn, if the assets are generating $ 150mn cash flow you still are getting $50mn FCF post capex .
Now if capex is down to steady state of $60-70mn per year net to cairn and production ramps up, cairn is looking at at least $100 to 150 mn FCF on a sustainable basis going forward. More importantly none of the capex will need debt funding unlike what could be the case with the North Sea assets assuming a near field development is sanctioned or SNE asset to grow production. So in essence with CNE buying into the Egypt asset all the growth and production capex is self funded by the asset itself which is rare and then it can throw off $100-150 mn FCF even at lower price levels which the UK assets couldn't do. And then there is so much exploration. I'd not be surprised if CNE chooses to do a lot of exploration in the western desert given their Rajasthan desert oil field exploration experience add a lot of value to Egypt assets and sell and exit the Egypt asset in future to some other buyer. Cairn is definitely good at entering but with portfolio management can be said that cairn could exit Egypt as well once good value is extracted. Cairns aim seems to be to use cash flow from these new assets to use for big exploration of Suriname /Mauritania Israel etc. which is a good strategy. With the UK asset cash and hopefully a good top up from the award cash cairn could acquire an even bigger asset which will double the fcf to at least $300-400 mn assuming cairn repeats the Egyptian asset acquisition metrics.
All IMO dyor
Whitehat - agree. The acquisition is definetly not something you would have expected Cairn to go for. Not the best bottom of "once in a generation oil cycle" acquisition IMO
Would have preferred some stable jurisdiction and political risk given the India experience. Lets hope the next acquisition is in a bit stable jurisdiction which will diversify the production cash flow base. Need a big asset hopefully that can get Cairn to start paying a regular dividend.
Given the terrible YTD share price performance, Cairn should take a note of the market sentiment and get the Cairn story back on track with another stable juridiction asset acquistion along side award monetisation.
All imo
Maybe it's due to the below downgrade in pt? Market and analysts clearly not impressed with the acquisition and the shareholders vote for the acquisition is due on Monday. Some of these big IIs don't like to be seen investing in such high political risk areas so might be exiting. Comparatively they seemed to be okay with political risk of Senegal but Egypt for them seems a bridge too far? CNE needs a nice oil deal now to balance the portfolio as oil is high margin than the rubbish fixed low gas price deal that Egypt came with...
Will be interesting to see the vote percentage towards this acquisition is on Monday?
IMO dyor
"Jefferies also restarted coverage on Cairn Energy with a 'hold' rating and 145.0p target price following the disposal of UK North Sea production assets and the acquisition of onshore Egyptian production assets from Shell.
The analysts stated that recent transactions meant that Cairn's production will be more than 60% gas from 2022 onwards, underpinned with fixed gas sales prices and that will result in lower volatility to commodity price changes.