InvestorQ : What happens now that Cairn UK is planning to attach Indian PSU properties to recover its dues from the Indian government?
Riya Dwivedi made post

What happens now that Cairn UK is planning to attach Indian PSU properties to recover its dues from the Indian government?

shrinidhi Rajan answered.
1 year ago

With the Indian government not willing to relent on the retrospective tax issue pertaining to the Vedanta/Cairn deal, Cairn Energy is planning to take its steps to execute the order of the arbitration panel award. To begin with, Cairn Energy of UK will bring lawsuits in the US and other countries. While attaching sovereign assets becomes a lot more complicated due to diplomatic issues, one way out could be targeting the PSU assets.

But for that to happen, Cairn UK PLC has to first make an attempt to pierce the corporate veil between the Indian government and PSU companies. Let us look at why this is important. There are PSU assets in industries like oil and gas, shipping, airline and banking sectors that are located abroad. However, even if these are PSU assets, Cairn will have to first effectively prove in court that such PSU assets are effectively government assets.

However, it may be a lot more challenging where the said company has already made a public issue and there are private shareholders in the company. In such cases, it becomes a lot more difficult to attach the assets of the PSU as a proxy for government debt. Cairn plans to seize overseas Indian assets in countries like the US, UK, France and Netherlands where the courts have ratified the arbitral order to recover $1.2 billion.

It may be recollected that the Indian government had asked Cairn to pay Rs.10,247 crore and towards these dues, the government had held back dividends payable to Cairn UK by Vedanta and also forfeited shares held in the demat account and sold it in the market. The idea was to recover the dues to the extent possible. How it eventually happens will be a test of diplomatic ties, but Cairn will be cautious of Indian investments in the UK.

This method of recovery was used against Petr oleos de Venezuela or PDVSA of Venezuela. Cairn has apparently identified such assets across select geographies but they have been unwilling to disclose any further details. Cairn is clearly under a lot of pressure from its global shareholders to recover dues from India, as it could make a substantial difference to the financials of the company.