* Plans to buy 51 pct stake - source
* Deal likely to be announced by Monday - source
* Cairn India shares up 4.8 pct; Vedanta down 6.8 pct
* Deal would need India govt approval - Petroleum Secretary
(Adds analysts, background, updates shares)
By Tom Bergin and Pratish Narayanan
LONDON/MUMBAI, Aug 13 India-focused miner
Vedanta Resources (VED.L) is close to a deal to buy a 51 percent
stake in Cairn India (CAIL.BO) for $8 billion to $8.5 billion, a
source familiar with the matter told Reuters on Friday.
The deal would represent Vedanta's first foray into oil and
gas, and help Edinburgh-based Cairn Energy (CNE.L) fund an
expensive drilling programme in Greenland.
The two companies said on Thursday they were in talks about
Vedanta, controlled by chairman Anil Agarwal, buying a stake in
Cairn India, which is 62.4 percent-owned by the British firm.
Two sources said a deal to give Vedanta control of Cairn
India was at an advanced stage, and one said a deal would likely
be announced on Monday.
Cairn Energy and Vedanta declined to comment about the
The proposed sale price suggests an around 25 percent
premium to the valuation of Cairn India before news of the
planned acquisition was first reported.
The bid raised concerns that Vedanta may become
overstretched, given its current debt position, investment
commitments and recent agreement to buy Anglo American Plc's
(AAL.L) zinc assets for $1.34 billion, analysts at Credit Suisse
said on Friday.
A huge oil find in Rajasthan helped propel Cairn Energy from
a small company to a member of the FTSE 100 Index .SXEP of
Britain's largest companies.
It spun off the Indian operations in January 2007 and now
its exploration efforts are focussed on Greenland, where it is
drilling the first well in over a decade.
"(A) Cairn India share sale would make sense for funding
Greenland," analysts at Collins Stewart said in a research note.
Shares in Cairn India, the country's fourth-largest oil and
gas company, closed up 4.4 percent, valuing the company at
around $14 billion.
Vedanta shares added to Thursday's losses, trading down 5.3
percent on the London Stock Exchange at 1204 GMT, while Cairn
Energy traded up 1.6 percent.
CAIRN TO RETAIN A STAKE
Cairn Energy may sell a stake in Cairn India, but would not
exit the business, the head of the the company's local unit said
"I don't think they are exiting the business. They are just
selling stake," Rahul Dhir, chief executive of Cairn India told
reporters after meeting Indian Petroleum Secretary S.
Sundareshan said a company that has signed a production
sharing contract (PSC) with the government of India for an oil
exploration block would need the government's approval if a
stake in the field or the company were sold.
"All PSCs have provisions for appropriate government
approvals before such changes in the ownership are made," said
Sundareshan, the top official in the oil ministry. Dhir did not
provide further details.
"What I do know is that they (Cairn Energy) remain a very
strong supporter of our business. If a new strategic shareholder
is coming, it only underscores the belief that they have in our
business," Dhir said.
Cairn India's Rajasthan field should soon begin to throw off
large quantities of cash, which could help fund Cairn Energy's
ongoing drilling commitments - thus allowing it to return cash
to shareholders via a special dividend, a tactic explorers often
employ after exiting a big find.
A strong stream of dividends from Cairn India would also
allow Vedanta to pay interest on any debts taken on to finance
its acquisition of shares.
(Additional reporting by Pratish Narayanan in MUMBAI; Writing
by Himangshu Watts; Editing by Anshuman Daga and Simon Jessop)