Govt nixes Vedanta plan to demerge HZLThe Centre has opposed Vedanta-controlled Hindustan Zinc’s plan to demerge into three separate entities dealing with zinc & lead, silver, and recycling businesses, saying reorganisation would lead to “unnecessary complications” without adding much value. Zinc and silver, that represent the two key business verticals, are anyway mined together, and separation of the two would be difficult, the government is learnt to have noted, in a communication to HZL management.
The support of the Centre (ministry of mines) is crucial for the HZL plan as the demerger could require approval by three-fourths of members/creditors in the relevant tribunal to go through. The minority shareholders with at least a 10% stake in the company can object to the proposal in the National Company Law Tribunal (NCLT).
On September 29, 2023, the HZL board asked the company to explore creating separate legal entities for its zinc and lead, silver, and recycling to unlock their value and better capitalise on their distinct market positions.
This is the second face-off between the Vedanta Group and the government about HZL. Earlier, in FY23, the Centre had to abandon a plan for offer for sale (OFS) due to differences with the company management.
The Centre owns 29.54% of HZL, which is worth Rs 38,500 crore at current market prices.
Responding to FE’s query on the issue, HZL CEO Arun Misra said: ‘Post board meeting in September 2023, the company has appointed leading advisors to study the current corporate structure of the business and examine whether the present structure is optimal, or if there is a scope for unlocking further value for the company’s shareholders, including the Government of India.”
With this motive, he said, the company has engaged in “continual dialogue” with the ministry and has kept it apprised of all discussions and developments regarding the proposed reorganisation, which is aimed towards unlocking value for all shareholders including the government.
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 stake 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.
“We have failed to understand the logic of demerger when the businesses, especially of zinc and silver are integrated as these metals are mined together from the same mines,” a government official told FE.
Several issues could arise including how separate accounts will have to be maintained from the same commercial activity of mining as well as related party valuations of the minerals, another official said.
Of Rs 32,481 crore revenue in FY23 from three main components of HZL’s business, Rs 24,180 crore from zinc (74.4%), silver Rs 4,388 crore (13.5%) and lead Rs 3,913 crore (12.1%).
The government was keen to exit HZL in small tranches, which has been delayed, due to Vedanta’s plans including an earlier proposal to sell its African zinc business to HZL, which had spooked investors’ interest. The Centre acting in the interest of minority shareholders was understood to have nixed HZL’s proposed $2.98 billion related party transaction to buy the promoter’s African zinc assets. 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 record dividend of around Rs 32,000 crore to shareholders in FY23, of which around Rs 9,000 crore accrued to the Centre.