Jefferies downgrades Cairn Energy after $1.6bn Indian tax bil

News that Cairn Energy has been handed a $1.6bn tax bill in India has prompted Jefferies to cut its rating on the oil and gas stock from 'buy' to 'hold'.

Oil & Gas Producers

8,043.72

15:45 15/11/24

1.32%

105.17

The broker, which lowered its target price from 220p to 172p, said it was "blindsided" by the developments.

The bill by the Indian government relates to unpaid tax by a Cairn India subsidiary, Cairn UK Holdings Limited.

FTSE 250-listed Cairn Energy said it would dispute the bill under the UK-India Investment Treaty in order to protect its legal position and shareholder interests, but had made no accounting provision. Parties are now required to enter a three- to six-month negotiation period.

However, Jefferies said that whatever the legality, a "new overhang moves in" for the company.

It pointed out that the $1.6bn bill is equal to Cairn Energy's current market capitalisation and significantly greater than the $700m estimated value of its 9.8% stake in Cairn India.

Jefferies has lowered its core net asset value (NAV) forecast for Cairn Energy by 3% to 125p per share after including higher assumed legal costs to fight the claim.

However, the total NAV estimate has been cut by 14% to 238p per share as a result of an increased risk to the group's Cairn India stake.

The shares were down 18.2% at 150p by 09:56.