Cairn agrees $575 mln loan to help develop oil fields

LONDON Thu May 15, 2014 4:03pm IST

Cairn India employees work at a storage facility for crude oil at Mangala oil field at Barmer in Rajasthan August 29, 2009. REUTERS/Parth Sanyal/files

Cairn India employees work at a storage facility for crude oil at Mangala oil field at Barmer in Rajasthan August 29, 2009.

Credit: Reuters/Parth Sanyal/files

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LONDON (Reuters) - Oil explorer Cairn Energy (CNE.L) has agreed a $575 million loan to help it to develop North Sea fields in a move welcomed by analysts as an indication that a tax dispute over its Indian assets will not cause any long-term damage to the company.

The London-listed group, dragged into India's tax crackdown on foreign companies in January, also announced on Thursday that the financial damage resulting from the tax authorities' freeze on its $1.1 billion of Indian assets will be assessed by the company in August.

Cairn's stock was buoyed by the new financing from BNP Paribas (BNPP.PA), with the share price up by about 2 percent in early trade. That had retreated to a 0.3 percent gain by 0930 GMT but the shares were still outperforming a 0.5 percent decline for the broader FTSE 250 index.

"This (debt) agreement is a significant step forward for the company, in our view, confirming that longer-term business is unaffected by the Indian tax situation and that the UK development portfolio is attractive to debt providers," Jefferies analysts said in a note.

BUYBACK HALTED

Cairn had previously called a halt to a $300 million share buyback programme until the Indian tax issue is resolved, saying at the time that that the outcome would shape the company's way forward beyond 2014.

Indian tax authorities are investigating Cairn's income tax dating back about seven years, having already targeted other multinationals including Anglo-Dutch oil major Shell (RDSa.L), South Korea's LG Electronics (066570.KS) and France's Capgemini (CAPP.PA) in a broad crackdown as India seeks to reduce its budget deficit.

"The Indian income tax department has cited legislation introduced in 2012, with retrospective effect, as the reason for these current enquiries," Cairn said on Thursday.

"While these are being dealt with, Cairn has been denied access to the value of its shareholding in Cairn India Ltd (CIL), either through disposal or future dividend income, which will be assessed for impairment at the next reporting date."

The group is due to report half-year results on Aug. 19.

The company also said that its net cash balance stood at $1.2 billion at the end of March.

(Reporting by Dmitry Zhdannikov; Editing by David Goodman)

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