The government will sell its residual stake in Vedanta-controlled Hindustan Zinc Ltd (HZL), which is worth about Rs 40,000 crore at the current market prices, “but in smaller tranches and over a long run,” keeping in mind the objective of maximisation of value for the exchequer, an official told FE.
The government in consultation with merchant bankers is exploring launching the first OFS in HZL in the current financial year. The share price of the company closed at Rs 321.7 on Monday, up 0.99% from the previous closing price on the BSE.
A planned stake sale by the Centre in the company was abandoned the previous year due to promoter Vedanta’s plan of a related party transaction that spooked the investor sentiment.
Currently, Vedanta Ltd owns 64.92% of HZL. After India’s largest zinc/lead miner, was privatised in 2002-2003 in favour of Vedanta, the Centre’s 29.54% was categorised as the public float. After Vedanta lost the case to acquire the residual stake from the government in 2021, the Supreme Court permitted the government to exit by offloading the stake through public offers.
“The government will exit HZL, but it will be a long haul. Nearly 30% or one-third of a large company can’t be offloaded in the market in a shorter period via the public offer route. Buyers have to be found, so, it has to be gradual,” the official said.
The government managers ascribe the delay in bringing out the OFS in HZL since last year to promoter Vedanta’s proposed $2.98 billion related party transaction, which was later nixed by the Centre. On January 19, 2023, the HZL board approved a proposal to buy promoter Vedanta’s global zinc assets in a ‘related-party’ transaction despite the opposition of the government nominee directors from the mining ministry. The board decision came as a jolt from the blue, derailing its upcoming OFS last year.
The Centre vetoed the Vedanta move. As per Sebi regulations, related-party deals require the approval of minority shareholders by a majority.
As the promoter Vedanta needed cash to tide over its tight liquidity, HZL paid a special dividend last year. The Centre’s residual stake in HZL fetched around Rs 9,000 crore in dividends in the previous fiscal, which helped the Centre bridge its shortfall in disinvestment receipts.