Corporate Governance Alert – Cairn India Limited

Cairn India Limited: USD 1.25 billion Loan to Related Party – a promoter company

* Cairn is giving loan of USD 1.25 billion to a group company, a foreign subsidiary of Sesa Sterlite Limited, at Libor plus 300 basis points for a 2-year period. The company has already disbursed $800 million, even before informing the shareholders. The disclosure is being made post hoc.

* That the company chooses to disclose the related party transaction at an earnings call shows disregard for fair disclosure on the company, and merits a full-fledged investigation by SEBI. The company has not made a formal disclosure of this related party transaction to stock exchanges.

* Such a transaction would be considered a related party transaction under the new corporate governance norms in Clause 49 of the listing agreement effective October 1, 2014 and shareholder approval would have to be sought, with the promoters getting no vote.

* The Board of Directors seems to have been mute spectators of such a related party transaction. In the interest of good governance, the Board of Directors should have insisted that the company take shareholders’ approval for the related party transaction with one shareholder.

To access the full report, click here: CG Alert – Cairn India Limited