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The approval of the open offer comes seven months after London-listed Cairn Energy agreed to sell up to 51 percent in its Indian unit to Vedanta in a deal valued at up to $9.6 billion.
The Indian cabinet still needs to approve the deal, which has been delayed due to a disagreement over royalty payments.
Federal approval is crucial for completion of the biggest acquisition in the Indian oil sector and could boost investor sentiment in Asia's third-biggest economy.
Approval for the open offer to buy more shares from public shareholders in Cairn India was a necessary step before the deal could be finalised. Still, uncertainty about the deal remains.
"There is still a complete lack of clarity on this issue. The government needs to give clearance first," said Arun Kejriwal, director at research firm KRIS.
The transaction has been delayed due to a dispute over royalty payments by state-run Oil and Natural Gas Corp, which has a 30-percent holding in the Cairn-operated Rajasthan fields in western India but pays 100 percent royalty.
India's oil ministry has maintained it has nothing against the deal but it would strive to protect ONGC's interests.
"In terms of corporate structuring of the deal, we think there is nothing wrong in this deal and therefore the open offer approval was expected," said Alok Deshpande, an energy sector analyst with Mumbai brokerage Elara Capital.
"The royalty payment has created such a big issue and it remains to be seen the clauses that will be put to resolve this."
Vedanta Resources believes the Indian government will approve its plan to buy Cairn Energy's India assets in the next few days, the chairman of the London-listed company said on Tuesday.
Cairn Energy agreed last August to sell up to 51 percent in its Indian unit to Vedanta in a deal valued at up to $9.6 billion, which had been delayed as the government looked into issues of royalty payments.
Vedanta Chairman Anil Agarwal said he believed the royalty issued should be treated separately.
An open offer to public shareholders of Cairn India to buy up to 20 percent will be launched next week, he said.
Indian iron ore exporter Sesa Goa Ltd , a unit of London-listed Vedanta, will make an open offer to public shareholders of Cairn India to buy up to a 20 percent stake in the Indian unit of the British company, per Indian rules.
Shares in Sesa Goa were trading up 1.2 percent at 298.50 rupees at 0644 GMT in the main Mumbai market that was down 0.7 percent. Cairn India was down 0.4 percent at 366 rupees.
India's oil secretary on Monday said he hoped the cabinet would soon make a decision on the deal.
Last month, Cairn Energy's Chief Executive Bill Gammell said he expected the company to receive approvals for the deal by April 15, a deadline set by both companies to seal the transaction.
Source: EconomicTimes
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