Cairn puts share buyback on hold over Indian tax issues
19 March 2014
Scotland-based oil and gas explorer Cairn Energy has called a halt to a $300 million share buy-back programme until issues with Indian income tax authorities are resolved, the company said in London on Tuesday, giving a sharp knock to its share prices.
India's income tax department had contacted Cairn Energy in January to discuss tax assessments dating back about seven years, making it the latest foreign company to be embroiled in the country's tax crackdown as it tries to cut its budget deficit.
Other multinational companies have also been targeted, including Anglo-Dutch oil major Shell, South Korea's LG Electronics, France's Capgemini, and perhaps most famously, Vodafone Plc.
Cairn Energy said it would suspend its buy-back as of 21 March in the light of the tax review, the outcome of which it said would shape the company's way forward beyond 2014. Cairn has completed about one third of the buy-back.
"Throughout its history of operating in India, Cairn has been fully compliant with the tax legislation in force," Cairn Energy chief executive Simon Thomson said on a conference call. "We intend to take whatever steps are necessary to protect our interests."
In January, India's tax authority had requested further information on Cairn Energy's 2006 income tax that pre-dated the flotation of its Cairn India business in 2007.
The company was ordered not to sell its shares in Cairn India during the investigation, limiting the firm's ability to raise cash from selling its 10 per cent holding in Cairn India, valued at around $1 billion.
Cairn Energy's chief financial officer Jann Brown said the company was in the process of compiling the information requested and would send it to the tax authority in April.
Cairn Energy shares were the biggest loser among London's FTSE 250 companies, down 11 per cent at 1023 GMT on Tuesday.
The oil and gas explorer also announced annual results on Tuesday, where it reported a higher-than-expected after-tax losses of $556 million due to soaring costs for unsuccessful exploration in Morocco and the North Sea.
The company's costs of unsuccessful exploration rose 34 per cent year-on-year to $213 million, which included $107 million spent on drilling offshore Morocco and $81 million in the Norwegian and UK parts of the North Sea.
Cairn Energy said on Monday that it had plugged and abandoned a well in Morocco, a country whose offshore resources are tipped as one of this year's promising exploration areas.