Cairn India raises $1.6bn debt

Cairn India, an oil exploration company, announced that it has raised $1.6bn of loans, or about Rs 7,500 crore, for its Rajasthan oil project. The debt is split between $750mn of foreign debt and $850mn of domestic debt. Standard Chartered Bank and International Finance Corporation have funded the foreign component to the tune of $500mn and $250mn respectively. The $850mn domestic debt has been underwritten by the State Bank of India. This would be a syndicated debt arrangement, it appears. SBI Capital Markets were the advisors for the domestic component.

The company will repay existing debt of $850mn and use the rest to fund further investments. Cairn has started pumping up oil from its Mangala oil field and on October 8, 2009, delivered the first volumes to MRPL. A company statement said that the Barmer basin –including the Mangala, Bhagyam and Aishwarya oilfields- will pump out about 175,000 barrels of oil per day.

Rahul Dhir, managing director and chief executive, Cairn India, said in a statement: “This is in line with our strategy of funding development expenditure through debt and realigning the company’s capital structure to provide financial flexibility for the future.” In short, it means that the company can use its future cash flows to repay debt, lowering its capital employed in the business, which in turn will boost returns.

Here is the press release.

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