CNE LN – Update – Tender structure announced – we are looking to book our profits +50% ABS on the trade
*We continue to like the oil sector and are tempted to keep a small position as we believe in the E&P assets of CNE but we also want to use the liquidity event to book profits as we are up +50% even though we continue to see another 20-30% upside in the stock
*Yesterday we saw the tender structure announcement and today we saw results which were inline
*We hope to get an opportunity to buy them back lower on flow-back from event-driven traders booking profit
*Looking at the NAV of CNE we see around 107p being paid out through the tender and buyback
*In total we get to a NAV of around 265p which implies a further 20% upside when we add in the E&P assets – with the recent oil price volatility it is very difficult to get to a precise figure for this – we would therefore be tempted to use the liquidity event into the tender to reduce our position as we book profits from what has been a very profitable trade
*The buyback should also provide the company with decent support while event driven flow goes out and traditional E&P investor flow goes in
Tender structure announced summary
*USD 500m to be returned through a tender– inline with expectations – after the tender the company will start its USD 200m buyback
*Tender price to be based on a five trading day VWAP up to and including the closing date of the offer
*Eligible shareholders will alternatively be able to select to tender their shares at the clearing strike price for the Tender Offer
*EGM set for 25th March – requires 75% of the votes to be in favour
*Tender offer 8th March – 5th April
*6th April announcement of the strike price and results
*The remainder of the Indian Tax Refund will be retained to augment working capital and to assist with the further expansion of the Group’s low cost, sustainable production base
*The company currently has around 500m shares outstanding, the buyback corresponds to around 10% of the capital
Price
*VWAP based price (minimum price) to a 5% premium over the VWAP price (maximum price) – following closing a clearing strike price will be selected which allows up to USD 500m to be distributed
*To the extent the company does not received sufficient take-up it plans to consider paying out a special dividend for the remainder
Process
*Submit a tender at whichever of the prices within the Price Range is ultimately determined to be the Strike Price (referred to as a “Strike Price Tender”), that is a tender which is not made at one of the specified prices within the Price Range
(B) submit a tender at a single specified price within the Price Range; or
(C) submit a tender at more than one of the prices within the Price Range (which could include a Strike Price Tender).
Major shareholders
MFS 13.687%
Blackrock 9.464%
Abrdn 5.546%
Vanguard 3.509%
BUY CNE LN – India Update – Reiterate Buy
Thursday • 06 January 2022 • 08:39
Statement from company overnight saying the company has now concluded all necessary steps required for receiving refund, upon acceptance India will pay USD 1.06bn – working with government to expedite refund – special dividend expected early 2022
We continue to see large upside for the Capricorn (recently changed name from Cairn)
Our SOTPs comes in at around 280p implying a 45% upside from here and see this update as a potential catalyst – we have adjusted our pt a bit downwards as oil is off the highs from last year
CNE LN – Update – Reiterate BUY, +35% ABS – We continue to see a +50% upside although catalyst probably not until next year
Wednesday • 03 November 2021 • 14:18
*Announced today that it is working with Indian government to expedite refund
*The company has dropped litigation and accepted the governments offer to settle for USD 1bn – inline with what was widely expected
*The company reiterates the early 2022 guidance for the special dividend (as previous announced although investors were being more hopeful)
*The allocation of the USD 1bn is expected to take form of up to USD 700m to be returned to shareholders via special dividend and buyback (USD 500m/ USD 200m split) as announced by the company back in September
*CNE said today that they will commence the filing of the necessary documentation “intimating the withdrawal, termination and/or discontinuance of various enforcement actions
*Estimates by legal experts has been that when the filing process starts it take 3-5 months, depending on if the parties wait for deadlines or expedite
*The name remain one of our top picks and according to our conservative SOTP we still get to a 300p PT which implies a >50% upside potential
CNE LN – Update, Reiterate BUY, -11% ABS – India seeking to scrap retrospective tax rule putting wheels back in motion for CNE’s case, we see a +200% upside
Thursday • 05 August 2021 • 15:06
*Recent sell-off creates a great opportunity to add to the CNE position which has unjustly suffered from the recent sell-off in oil as the company has limited exposure to oil compared to the arbitration case
*The finance ministry said today that they are proposing a bill that no tax demand shall be raised in future on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28th May, 2012 – https://www.livemint.com/economy/govt-to-amend-income-tax-act-nullify-retro-tax-demands-11628164822039.html
*”It is further proposed to provide that the demand raised for indirect transfer of Indian assets made before 28th May, 2012 shall be nullified on fulfilment of specified conditions such as withdrawal or furnishing of undertaking for withdrawal of pending litigation and furnishing of an undertaking to the effect that no claim for cost, damages, interest, etc., shall be filed. It is also proposed to refund the amount paid in these cases without any interest thereon” – This all reads very positive for us in the CNE case
*CNE’s assets seized by the government were in relation to an IPO back in 2006 which 8 years later resulted in India freezing and selling a stake held by CNE worth USD 1bn
*To set this into perspective it is worth noting that CNE’s current market cap is USD 860m leaving a huge upside potential as we are seeing little to none of the USD 1bn factored into the current price
*With this positive news development we finally see some movement again
*The international arbitration court has already ruled that India should pay CNE back USD 1.4bn including interest – India has appealed this arguing that taxation is not part of the international investment treaty (there was no option to appeal the ruling itself)
*Elsewhere, a couple of weeks ago a French court froze some real estate assets held by India in Paris as a result of the arbitration ruling – CNE has filed in multiple jurisdiction to freeze assets which is putting pressure on India
*We have a price target of 380p on CNE if we factor in the USD 1bn that India sized – this implies a 200% upside to the current share price
*We have reached out to IR for comments
CNE LN – Reiterate BUY +31% ABS, +15% REL – Appeal inline
Thursday • 11 March 2021 • 09:52
*We see it as a good entry point here for anyone not involved in the name
*We see this recent sell-off as more fast money trying to profit from any announcement which is causing volatility
*Investors were hoping for more of a ‘solution’ being released with the earnings on Tuesday while to us it was quite clear that the India government is unlikely to want to pay in the middle of Covid and therefore trying to postpone
*We are medium term holders as we expect that India will be forced to pay one way or the other although an appeal can drag this out
*The new rhetoric from the India government is implying that CNE acquired the national resources through corruption which could open up a completely new case although don’t see this as having any legs
*CNE reiterated in the results that the ruling can be enforced in over 160 jurisdictions around the world and they have already registered the award in multiple of those jurisdictions and begun the process of identifying assets, against which action could be taken, should that be required
*CNE also been exploring selling the claim to a third party or lend money against the claim
*A SOTP valuation using the full Tax arbitration award shows the stock trading at a 60% discount to NAV implying a price target of 450p – in case they settle with a third party for half the claim the pt we get to is 320p
CNE LN – BUY – Update – India challenged VOD LN tax arbitration case
Monday • 08 February 2021 • 14:21
*CNE case under consideration
*The details terms of the award are under examination by the Government
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Thoughts: We were expecting India to challenge both cases. A sell-off on this could therefore provide a nice opportunity to add. They have not yet confirmed what they are planning for the CNE case but the fact that CNE is targeting assets to seizes put the government under much more pressure than in the VOD case where there is no direct cash implication. We expect them to challenge the CNE ruling as well.
CNE LN – Reiterate BUY +28% ABS, +20% REL – Positive sentiment over the weekend, should double over time
Monday • 01 February 2021 • 08:31
*Interesting article in the Business standard saying India could give CNE some oil fields instead of paying the USD 1.4bn citing sources
*Article calls it a win-win to get an established exploration and production (E&P) firm back to India while their economy is struggle with Covid leaving limited options for payment
*Points out US oil firm ConocoPhillips managed to seize Venezuelen assets post its awarded arbitration
*Our thoughts are that while cash would be preferred, the sentiment of India looking at options to pay and having worries about assets being seized very positive for CNE
*A SOTP valuation using the full Tax arbitration award shows the stock trading at a 55% discount to NAV implying a price target of 410p
*While the stock spiked on the arbitration award before Christmas it has since gradually been selling off and is now -15% lower
*This pull back provides another add or initiate opportunity
CAIRN ENERGY – BUY – UPDATE +32% so far: BlackRock pushing India
Monday • 25 January 2021 • 08:54
– PTI reports BlackRock, MFS, Franklin Templeton and Fidelity ask India – as well as the governments of their country, the US and the UK – to honor arbitration award citing sources
Out thoughts: Not sure it will push the Indian’s into immediate payment but puts pressure on them to respond and get the process moving. We see Cairn as a buy or chance to add below 180.
Full repayment of its claim against India gives us a 350p PT
Half of its claim against India being repaid gives us a 250p PT
Currently +32% on trade…
CNE LN– UPDATE +50% to date – Hold for now but looking to add on weakness
Wednesday • 20 January 2021 • 16:09
*Seeing a few of the banks downgrade to Neutral over the last week after the stock has 25% rally since the Indian tax case announcemnet back on the 23rd December
*While we still see a +80% upside we believe that we believe this will take some time as we expect that India will appeal the process by arguing that tax matteres are not part of the international tax treaty
*We do not expect India to be succesful in its appael but more a political way to delay the inevitable as the timing of the payment politically comes in a very tricky time for the government in the middle of Covid
*Large financial flexibility of the group allows for large upside potential, the company is net cash positive even without taking the Indian tax ruling into consideration
*The stock goes ex its 32p special dividend on Monday – proceeds from the Senegal sale – a simultaneous share consolidation will take place to neutralize the effect on the share price
CNE LN – UPDATE +20.6% so far: Reiterate Buy – Special dividend inline
Thursday • 17 December 2020 • 17:53
*Received government approval for Senegal sale – to pay a 32p special dividend – goes ex 8 January, EGM on 8th January to vote on the distribution
*Timing and amount inline with what the company has previously indicated, next up on our catalyst call is the India ruling which could effectively double the market cap of the company
CNE LN – UPDATE – Upside remains huge – Ruling expected shortly
Thursday • 26 November 2020 • 10:47
*Market cap could effectively double on a positive ruling
*Decision likely already taken – now just paperwork
*Decision cannot be challenged – only process
*Speculation in press in India is that India could challenge the process saying that tax is not part of the bilateral investment treaty
*CNE does not think discussion about process has any merit and points out this speculation been going around for a long time
*Political decision as well – some speculation that by challenging the process India could push the costs away from Covid times
*A lot of people drawing parallels between Vodafone case and Cairn – a big difference is that Vodafone ruling does not come at a cost for India while CNE ruling would imply a cost – along with the cases also being very different
*Regarding the special dividend CNE still waiting for the final approval for the Senegal sale – expected by year end – we expect the dividend to be around 32p but will be paid through a share consolidation rather than a dividend payout
CNE LN – The New Star of Bollywood – Share Price Could Double!
Thursday • 15 October 2020 • 09:15
*Guidance for outcome of the USD 1.4bn arbitration case is still end of summer 2020
*Covid should not have delayed much as independent arbitrators are used to working remotely and based in 3 different countries
*Both parties have looked at losses suffered and not far apart in estimates
*Outcome of arbitration cannot be appealed although process can be
*Very few countries in the world do not respect the outcome at bilateral international courts – India said will adhere
*Case boils down to a reorganization the group did as part of an IPO in India in 2006 – they had to transfer some assets but none of them changed group ownership – 8 years later the government froze the remaining stake CNE held in the IPO worth USD 1bn
*A positive ruling in the arbitration could more than double the company’s current USD 1.1bn market cap
*Vodafone tax case in India very different, involved an actual transaction, but Vodafone remains invested in India and did not face any financial penalty
*CNE remains confident about its position in the case
Future of company leaves upside as well
*Large financial flexibility of the group allows for large upside potential
*Want to broaden the production base and also focused on ESG commitments – Now in a position where they can acquire more licences or even look at acquiring other players
*Shareholder return of Senegal sale completion expected by year end pending regulatory approval – worth approx. 32p but will likely be done as a share consolidation
*Also has addition upside potential in Senegal sale – can get an additional 13p per share in contingent payments by 2023
*Current OPEX cost per barrel is around USD 18
Valuation
Our SOTP valuation shows CNE trading at a:
13% discount to NAV without including India (pt 165p)
60% discount to NAV with a full repayment of its claim against India (pt 350p)
45% discount to NAV with a half of its claim against India being repaid (pt 250p)