Cairn Energy plans £500m shareholder bonanza from Indian government tax dispute
London-listed oil and gas firm Cairn Energy has revealed that a long-running tax dispute with India is nearing its conclusion.
Bosses said they expect the country’s government to hand over 1.06 billion US dollars (£770 million) after officials seized a stake in its Indian operations as part of a tax payment they claimed was owed.
Both sides have been embroiled in legal disputes through international courts ever since but recent changes to India’s tax laws led to Cairn being offered a refund in return for ending its litigation.
As a result, the company said it will hand up to 700 million dollars (£506 million) to shareholders.
Near term India resolution will enable further shareholder returns and acceleration of strategy – up to US$700m to be returned to shareholders via special dividend and buyback, subject to approval, with remainder retained to further enhance the producing asset base. pic.twitter.com/q1BfmqJvda
— Cairn Energy PLC (@CairnEnergy) September 7, 2021
Cairn said: “The group is considering entering into statutory undertakings with the government of India in respect of new legislation, which would enable the refund of retrospective taxes collected from Cairn in India by way of asset seizures since 2014.”
It added: “In accepting the terms of the new legislation in India, Cairn would be required to withdraw its international arbitration award claim, interest and costs and to end all legal enforcement actions in order to be eligible for the refund.”
The money will be handed out to shareholders via a special dividend of 500 million dollars (£361 million) and a share buyback programme, where the company buys up shares on the open market, for 200 million dollars (£145 million).
The rest of the money will be used to expand the business, which also announced plans to buy Shell’s western desert assets in Egypt to rely less heavily on offshore development.
Securing long-term sustainable production, significant exploration potential and supporting cashflow growth: Egypt acquisition advancing to completion with transition planning underway.https://t.co/7QE4ZvtqxQ pic.twitter.com/UXWF4eH4Fj
— Cairn Energy PLC (@CairnEnergy) September 7, 2021
Cairn’s dispute with India stretches back to 2006 when the company restructured its Indian operations and passed ownership of its Rajasthan oil fields to Cairn India.
In 2012 the country’s government passed laws that could retrospectively tax mergers and acquisitions, including the restructuring of Cairn, for capital gain tax payments.
Authorities subsequently seized 10% of Cairn India’s shares, leading to a dispute that was heard in global arbitration courts, with Cairn seeking damages for lost profits from being unable to invest.
A hearing in The Hague ruled in Cairn’s favour but the arbitration decision has not been enforced.
