Monday, August 8, 2022

Cairn Energy threatens to seize over $ 1.2 billion in Indian assets in tax dispute

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Cairn Energy has threatened to seize Indian government assets if New Delhi does not pay the British oil and gas explorer $ 1.2 billion after losing a bitter dispute over retrospective taxes.

The warning, in a letter seen by the Financial Times, highlights pressure on Prime Minister Narendra Modi’s government to honor The verdict in one of its longest and most publicized tax battles.

An international tribunal unanimously ruled in December that New Delhi had violated its obligations under the U.K. India’s bilateral investment treaty in 2014, when income tax officials seized Cairn’s residual 10% stake in Cairn India.

In a decision Cairn called “final and binding,” the court ordered New Delhi to pay $ 1.2 billion in damages, plus interest and costs, to compensate Cairn for the shares – since sold. long by the tax service – as well as for confiscated dividends.

But in the month following the delivery of the 582-page judgment, Mr. Modi’s government gave no indication of its intention to honor the verdict, although payment is due immediately.

In the letter, Cairn said its shareholders – including large financial institutions such as BlackRock, Fidelity, Franklin Templeton, Schroders and Aviva – “expect an early resolution, failing which they will expect Cairn is continuing the award in accordance with his rights under the treaty.

“The sentence can be applied against Indian assets in many jurisdictions around the world for which the necessary preparations have been made,” the company added.

Although the letter does not specify when the assets could be seized, people familiar with the situation said the targets could include bank accounts as well as movable and immovable property, including the assets of public sector companies. such as Air India, but not diplomatic assets. .

Cairn’s battle with Indian authorities stems from a 2012 law – pushed by the previous Congress party government – that changed the country tax code retrospectively. In 2014, the tax authorities cited the new law to claim overdue debts resulting from the corporate reorganization of Cairn India in 2006 prior to its IPO.

People familiar with the situation said that since the December court ruling, several Cairn shareholders – representing around 30% of the company’s total shareholding – have pressured UK, US and Indian authorities to have the verdict be respected.

Indian authorities declined to comment.

Analysts say New Delhi’s actions in this matter will have wider ramifications for its international image, because Mr. Modi’s own party, Bharatiya Janata, had denounced the previous Indian government for what it called “fiscal terrorism”.

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“Investors are scrutinizing India’s decision in this matter very carefully,” said Richard Heald, Chairman of the UK India Business Council. “Modi was initially very negative about the retrospective tax situation. Now he has the opportunity to basically say “this matter is closed”. The question is whether he will do that?

India is not the first country to face the seizure of its international assets.

In 2012, an Argentine Navy ship was seized in Ghana as part of an attempt by U.S. hedge fund Elliott Management to collect sovereign bonds that Argentina had defaulted on 11 years earlier.

Elliott then raised $ 2.4 billion from the country after he struck a deal with reformist President Mauricio Macri.

In 2018, ConocoPhillips seized products from an oil refinery owned by PDVSA in the Dutch Caribbean, after the Venezuelan state-owned oil company failed to honor a international judgment awarding Conoco $ 2 billion in compensation for the expropriation of its assets in 2007.

Additional reporting by David Sheppard in London


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