Vedanta Resources today attempted to play down the Cairn India USD 1.25 billion loan issue, saying the move is a win-win for both the firms and was done following existing rules and regulations.

Creating concern among investors, Cairn India loaned out USD 1.25 billion to parent Vedanta Resources and has already disbursed USD 800 million at an interest rate of three per cent above LIBOR for a period of two years.

"This was a very cordial transaction consistent with all of the rules and regulations including effectively giving the Cairn shareholders the higher returns for their investment and it was done in a way which was in compliance with all forms of governance and ethics," Vedanta Resources CEO Tom Albanese told PTI.

Vedanta Group holds 59.90 per cent stake in Cairn India.

He said Cairn India's recent success in exploration, particularly with gas, and the amount of cash required for its future operations were well serviced by its existing balance sheet.

"So, there will be a component to its balance sheet, which basically was not getting good returns on its investments," he said, adding that Cairn India would not have got better returns anywhere else on similar terms with the funds.

Likewise for Sesa Sterlite, it was a good deal since it would not get an "equivalent" amount of debt at "such a competitive rate" externally, he added.

In its earnings statement, Sesa Sterlite today said its wholly owned subsidiary, which got USD 800 million loan disbursement till June 30, has repaid all of the accrued interest and a part of the principal of the inter-company debt extended from Vedanta Resources to Sesa Sterlite.

Shares of Cairn India on July 24 dropped the most in nearly five years after the transaction came to light. Cairn made the loan disclosure after analysts raised doubts on utilisation of cash reserves.

Analysts were of the view that the if Cairn did not have a better usage of its cash, it should have rewarded its shareholders buy way of bonus etc.

"While management justified it as just a treasury operation given a relatively higher yield (LIBOR + 300bps), we believe returning surplus cash to investors through a dividend payout or buy-back would have been a better utilisation," foreign brokerage Jefferies said in a note.

Proxy advisory firm InGovern Research Services said not making proper disclosures about such related party transaction shows "disregard for fair disclosures" and suggested that the capital market watchdog Sebi should look into the matter.

Under the new Companies Act which came into effect from April 1, companies need to take shareholder nod for related party transactions.

Cairn India, however, had earlier said that this being a related party transaction, prior approval of Audit Committee was taken and the transaction has been effected on arm's length principal.