The government has persisted with its opposition to Vedanta’s move to de-merge Hindustan Zinc Ltd (HZL), even after the promoter changed the plan from a three- to two-way split. A senior official, on condition if anonymity told FE that the Centre would not support the revised proposal either, as it felt that several issues could arise as a result of the split.

The focal point of the government’s objection to the de-merger, which the promoter will help boost valuation of the business, has been that since zinc and silver mines are physically integrated and mined together from the same mines, the separation of the business would be complex. It also sees issues of related-party valuations of the minerals.

HZL CEO Arun Misra, however, told FE: “We strongly believe this (demerger) is the right step. The government may have certain apprehensions about conflict with their offer for sale (OFS) and disinvestment process….” Misra also added that this would be the right time for the government to divest its balance stake in the firm.   

The company had earlier proposed to de-merge HZL into three– zinc & lead, silver and recycling business. This, as reported by FE earlier, was rejected by the government. The revised proposal was to create two companies — zinc & lead and silver—the main business lines of the company.

“Hindustan Zinc today has a market cap of $20 billion. Perhaps had we done the demerger today the market cap of silver company and zinc together would have reached somewhere around $24 billion where both the government and Vedanta would have stood to gain,” Misra said.

The government owns 29.5% of HZL worth over Rs 50,000 crore at the current market prices. Vedanta Ltd owns 64.92%.

“There is no negotiation with the Government of India (GoI). GOI is a substantial shareholder in the company and has nominee directors on board. The demerger plan has been discussed with the board and clarifications have been provided to the issues raised by them in meetings and through letters,” Misra said. The government is represented by the ministry of mines on the HZL board.

The government intends to divest stakes in HZL, which officials said has been delayed due to the company’s sudden announcements that created uncertainties in the investor sentiment, in tranches at opportune times including in FY25.“We strongly believe that GOI should carry out divestment of their stake in the company through OFS at this time as the share prices are the best in recent times,” Misra added.

Due to opposition by the government nominee directors, Vedanta’s proposal to sell its African zinc business for $2.98 billion in a related-party transaction to HZL could not sail through last year.

To push through the HZL demerger plan, the support of the Centre (the Mines Ministry) is crucial as the demerger would require approval by three-fourths of shareholders.

The company’s share price closed at Rs 403.95 on the BSE on Tuesday, an appreciation of 32% in the first 23 days of FY25. Analysts expect domestic zinc demand is likely to remain strong, driven by the government’s focus on infrastructure development and manufacturing output. HZL is one of the world’s top zinc producers. The company reported a 21% on-year decline in its net profit to Rs 2,038 crore for Q4FY24.

As the promoter Vedanta needed cash to tide over its tight liquidity, HZL paid a strong dividend yield with a record payout of around Rs 32,000 crore in FY23 (including around Rs 9,000 crore accrued to the Centre).

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