“Cairn India – Vedanta deal “Is another Satyam like scam waiting there?

As you know recent loan of 1.25 billion loan of cairn India to Vedanta raises concern about its corporate governance and management because –

Before giving such a big loan to Vedanta, either Cairn should take shareholders permission or should at least intimate share holders in much advance.

Last year around this time April  2013 cairn CEO gave a statement as below “We will retain the cash in the company,”. “This will give us flexibility for accelerated discovery and production from the Barmer basin.”

But now after giving loan to Vedanta, Cairn spokes person is saying as below

“This loan has been extended purely as an investment yielding better returns compared to fixed deposits where such sums were earlier invested at a return of around 2-2.5% p.a. The investment has been done at a return of 3% over and above the ongoing LIBOR rates. This return is much higher than the bank deposits for similar tenure and commensurate to a margin linked to a BB rated investment option.”

Here I want to take reader’s attention to balance statement of Vedanta till July 2014, at group level, Vedanta creaks under $10.4bn (£6.3bn) of attributable net borrowings and the company still faces a “slow path to balance sheet recovery”, This the extract from telegraph news

Vedanta acquired 58.5 % in Cairn India in 2011

     

Both the company may argue as per company act the deal has no problem .But did they bother about share holder’s concern before closing this deal.

Here a lot of question arises

1.   What is the guaranty that balance sheet is not manipulated.

2.   Why Cairn gave this loan to loan to a cash crunch company when Cairn itself needs US$ 3 billion to spend over the next three years to develop its oil reserves and maintain production from its tapering Mangala field in Rajasthan’s Barmer basin (as per its latest annual report).

3.   As per JN Gupta, MD at SES Governance “The loan entered with its group company is being invested in business and is neither liquid nor rated one. The independent directors should have objected to the move,” Why independent directors did not oppose this move?

This entire transaction is not fare and transparent and clearly raises concern on corporate governance.

As Abraham Lincoln said “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time”

Here company is trying to fool share holder, but let’s see how long.

Once Warren Buffet told “Good Manager, good operation and a strong balance sheet”

Here the first 2 points are failing and balance sheet game we will see the coming days….

 Thomas Phelps tells “Remember that a man who will steal for you will steal from you.”

 Its for the share holders sake they are doing, if that is the case sooner or later they may    ruin share holders money too.

Truly Vishal (the founder of Safal Niveshak)writes on his FB:

“Nigerian lotteries aren't the only big scams you must watch out for! There are local versions too.” J

Lastly If Newton had a "Fourth" Law of Motion…..

"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases."

What do you guys say …I have all ears to listen .

Disclosure:

It is entirely my personal thought. Do your homework before investing in these companies. It is just for knowledge purpose