The Centre could raise about R2,200 crore from the imminent buyback of shares by Vedanta-controlled Hindustan Zinc (HZL). The total size of the buyback proposed by the company is worth R7,477 crore, or about 20% of its paid-up capital and free reserves, a person with direct knowledge on the matter told FE. The Centre holds 29.54% in the firm, which is majority-owned (64.92%) by Anil Agarwal-run Vedanta.
In the light of a Supreme Court order in January this year that the Centre can’t further dilute its holding in the company without amending the Metal Corporation (Nationalisation and Miscellaneous Provisions) Act, 1976, under which HZL was then created, the government would seek legal opinion on the buyback offer of the company, the person said. “The government will seek the attorney general’s view on the issue,” he added.
Since the buyback will be proportionate to stakes held by each investor, the government’s or Vedanta’s shareholding won’t change after the transaction. “There should not be any legal hassle,” an analyst said.
The Supreme Court had held that the 2002 disinvestment in the firm — which led to Anil Agarwal-run Vedanta Resources acquiring control of the firm — was wrong and in circumvention of the law. As a result, it can’t sell its residual 29.54% stake in HZL that could have fetched the Centre R31,128 crore at current market prices.
So, the buyback by HZL would be a boon for the government as its plan to mop up R20,500 crore from PSU privatisation could draw a blank in FY17 due to a delayed to start to strategic sales.
HZL paid a record dividend of 1,390% during FY16. Its reserves and surplus stood at R36,540 crore as on March 31, 2016.
The Centre has garnered about R21,000 crore through a mix of small stake sales in a clutch of PSUs and the buyback of shares by five PSUs. The Budget estimate for disinvestment comprises R36,000 crore from the sale of minority stakes in PSUs and R20,500 crore from strategic disinvestment in FY17.
Since it could not afford to meet the disinvestment revenue target due to pressure on finances, the Centre is likely to rely more on the tested option of buybacks by PSUs this year to bridge any shortfall.