CNE LN – UPDATE – Upside remains huge – Ruling expected shortly

*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)