Hindustan Zinc’s (HZL) proposal to split the company into three separate firms would face challenges as it would be difficult for the company to garner requisite shareholder approvals. Furhet, the Indian government’s disapproving stance and its stake high are enough to block the transaction, according to a report by CreditSights.

“We believe it will be challenging for HZL to proceed with its proposed demerger of HZL, as we expect the company to be unsuccessful in garnering at least 75% of the required shareholder approval,” the Fitch group company said in a note dated March 14.

At present, the Indian government holds a minority 29.5% stake in HZL, while Indian mining major Vedanta (VEDL) VEDL owns a controlling 64.9% stake.

On March 12, government officials told FE that the centre had opposed HZL’s demerger plans as it would lead to “unnecessary complications” without adding much value. They were also of the view that there was no logic in demerging the businesses as zinc and silver are integrated as these metals are mined together from the same mines.

Further, CreditSights is of the view that VEDL’s planned demerger of its other businesses too could face major hurdles from its minority shareholders or creditors, which may delay or derail the deal.

In September last year, HZL initiated a restructuring exercise to create three business verticals – zinc & lead, silver and recycling – to help it capitalise on “distinct market positions” and attract investors.

“We feel that a demerger of VEDL will not fundamentally and significantly address Vedanta Resources (VRL) ability to service its debt obligations, and will in fact complicate VRL’s corporate structure; some moderate benefits could result from the improved ability to tap the public equity funding market and potentially higher valuations,” it said.

During the same month, metals and energy major Vedanta had announced plans to spin out its businesses into six listed entities, as it fights to stave off a debt crunch. In a statement to the exchanges, the Anil Agarwal-promoted company said the board has approved the demerger of diversified businesses to unlock ‘significant value’. The pure-play, asset-owner business model will result in aluminium, oil and gas, power, steel and ferrous materials and base metals being demerged and listed separately.

“Looking ahead, we believe VEDL could continue pursuing strategic asset sales or stake sales in key assets to address its next debt repayment tests in 2026-2028. Such assets could include the steel business (Electrosteel Steels), Konkola copper mines at VRL level and potentially the aluminium business, and the oil & gas business (Cairn India),” it added.