Cairn Energy hits 10-year low after firm suspends buyback over tax row

Shares of oil and gas exploration company Cairn Energy plunged nearly 12% to its lowest level in a decade after the Scottish firm suspended its $300 million (Rs 5,725 crore) share buyback programme in Cairn India pending the resolution of a tax dispute in India.

Shares of Cairn Energy sank nearly 12% amid hefty volume. The scrip was trading at 173.50 pence on the London Stock Exchange, the lowest level since January 2004, amid hefty volume. More than 49.14 lakh shares exchange hands compared to the 30-day average volume of 26.32 lakh shares. In contrast, shares of Cairn India surged 1.2% or Rs 4 to end at 331.40.

“The board has decided to suspend the previously announced share buyback programme as of March 21 till the position regarding the Cairn India shareholding is resolved,” the company said in a stock exchange.

Cairn Energy said it "is not able to sell" the residual shareholding in Cairn India "while interactions are ongoing with the income tax department”.

The I-T department had in a January 22 order held that the Edinburgh-based firm made capital gains of Rs 24,503.50 crore when it transferred its entire India business from subsidiaries incorporated in places like Jersey, a tax haven, to the newly incorporated Cairn India in 2006.

The company, according to the I-T department, received Rs 26,681.87 crore for the asset transfer against its entire investment of Rs 2,178.36 crore in the India business.

Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for $8.67 billion, still holds 10.3% stake in Cairn India.

The company faces a potential tax demand on an alleged Rs 24,500 crore of capital gains it made when in 2006 it transferred all its India assets to a new company, Cairn India and got it listed on stock exchanges.

In its defence, the company said: “Cairn reconfirmed with its advisers that throughout its history of operating in India, the company has been fully compliant with the tax legislation in force in each year.”

While the I-T department has so far not raised a tax demand on Cairn Energy, it has ordered Cairn India not to allow the transfer of UK firm's residual stake. It also ordered that the shares cannot be pledged or mortgaged.

Cairn has so far bought 2.518 crore shares worth $94.7 million (roughly Rs 580 crore) have been repurchased, the Edinburgh-based company said. That’s less than a third of the $300 million it had earmarked.

Cairn Energy was widely seen as a likely participant in the Indian firm's share buyback, which opened on January 23. Cairn India plans to buy 17.09 crore shares, or 8.9% of the equity, from the open market at not more than Rs 335 apiece, aggregating up to Rs 5,725 crore.

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