Will Cairn Energy shares keep rising after India amends tax laws?
UK oil and gas firm Cairn Energy’s share price made rapid gains ahead of India’s possible revision of tax laws.
- Cairn Energy (LON: CNE) share price rallied to 168.20 pence on Friday (06 August 20210
- India’s proposed tax law revision bodes well for the oil producer, analysts say
- Research teams on average foresee Cairn’s stock to rise another 35%
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Cairn Energy shares: Will the uptrend continue?
Shares of British oil producer Cairn Energy rose another 6.1% to finish at 168.20 pence each on Friday.
The London-listed stock had climbed as much as 47% on Thursday, before ending the session 26.2% higher.
India’s potential removal of a controversial tax will bode well for the UK company, which has oil and gas operations in the South Asian country, Bloomberg Intelligence (BI) analysts wrote.
The amendment ‘may represent the most concrete development yet in Cairn’s quest for full restitution’ from its protracted tussle with India’s government, BI noted.
As of Sunday, research teams largely viewed CNE shares positively, with 10 ‘buy’ calls, five ‘hold’ recommendations, and no analyst suggesting ‘sell’.
Their average 12-month target price was 226.69 pence per share, according to Bloomberg data. That implies a potential upside of 35% based on Friday’s close.
Analysts bullish on Cairn’s stock included Investec, which recommended ‘buy’ with a target of 275 pence, and Barclays, suggesting ‘overweight’ and targeting 315 pence.
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*Based on revenue excluding FX (published financial statements, June 2020)
What is India’s so-called ‘tax terrorism’ rule?
On Thursday (05 August 2021), India’s government proposed to scrap a 2012 law that taxed companies retrospectively on deals all the way back to 1962, and said it would refund the disputed amounts.
This could potentially settle the country’s multi-billion-dollar cases with Cairn and Vodafone, and attract more foreign investors, Reuters reported.
However, India will not pay any interest it may have owed to companies if it lost the legal cases. That sum is about 80 billion rupees (US$1.08 billion) in Cairn’s case, Reuters noted.
The then-opposition, now in power, had described the 2012 legislation as ‘tax terrorism’, AFP noted. The authorities tried to use the rule to claw back billions of dollars on overseas corporate deals.
According to the latest government proposal, taxes on the indirect transfer of Indian assets before May 2012 will be nullified if firms withdraw litigation and promise not to sue for damages in the future.
In 2020, Cairn was awarded over US$1.2 billion in damages at an international arbitration court over its dispute with New Delhi over the tax claims.
Cairn this year moved to seize properties in Paris and Manhattan owned by the Indian government, in an attempt to enforce the arbitration award. Several weeks later, India proposed to remove the law.
Cairn has said it was monitoring the potential law changes and will provide an update in due course.
BI analysts wrote that any proceeds for the UK oil producer could facilitate a merger or acquisition or a special dividend for its shareholders.
‘Cairn's strategic about-face, via acquisition of onshore gas-weighted assets in Egypt, is surprising, yet provides enhanced production scale, growth visibility, costs and reserves,’ they added.
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