HZL softens stand after govt blow; Company says deal possible only with shareholders’ nod

Govt says exploring legal options against cash deal

The notice signals a softening of stance by HZL on the issue.
The notice signals a softening of stance by HZL on the issue.

Hindustan Zinc (HZL) on Monday said the earlier board decision to buy Vedanta’s global zinc assets in a $2.98 billion cash deal can be taken forward only with shareholders’ approval in a general meeting. In a stock exchange filing, the Anil Agarwal-promoted company also said that the notice calling a shareholders’ meeting to consider the transaction has not been issued so far. A letter dated February 17 from the Union mines ministry threatening legal action, if the company pursued the board decision, would be placed before the next Board meeting for consideration, it added.

HZL CEO Arun Misra told CNBC TV18 later that “any Board decision on related party transaction has to have the approval of the majority of minority shareholders. That’s something sacrosanct for all of us. We have to get that if that transaction has to happen.”

The notice signals a softening of stance by HZL on the issue. The government, which holds 29.54% stake in  HZL, fears that the Board decision, if implemented, could prevent it from realising maximum value from the planned sale of a portion of its residual stake in the company via the offer for sale (OFS) route before March-end. Since the HZL Board resolution on January 19, its share price has fallen by nearly 19%.  

In its letter to the company, the government said it would oppose “any proposed resolutions in furtherance of the said Board agenda” and “will explore all legal avenues available to it” to block the process.

Requesting the company not to take any further action in relation to the relevant Board resolutions, it also suggested it could instead explore “cashless” options to acquire the assets.

Misra said that he was “very hopeful that before March-end we should have the OFS in the best interest of everyone.” He added: “We have got three months since the day of the Board meeting for convening shareholders meeting and getting it approved.. time is still left and my job is to work through the process,” he added.

However, even the latest stance of the HZL management doesn’t remove the uncertainty over the OFS, because even if the planned purchase of Vedanta zinc assets by the company is postponed to next fiscal, the government’s concerns as a minority shareholder about the deal causing an erosion of the value of its stake won’t go away. It is unclear as to how the government will react to the HZL’s conciliatory move, as diluting its stake beyond a level could also deprive it of the status of being the “majority” minority shareholder and attendant rights.    

The government’s residual holding in HZL is worth Rs 40,100 crore at current market prices. The government is keen on concluding the OFS to sell a portion of this stake before March 2023, as part of its efforts to boost disinvestment receipts in the current fiscal.  

FE had reported on February 10 that the government will veto the HZL board’s plan to acquire promoter Vedanta’s global zinc assets when the proposal is brought to the company’s shareholder’s meeting (AGM/EGM). The government feels the ‘related party transaction’ is not in the interest of minority shareholders, and might prevent it from realising maximum value from the sale of its residual stake in HZL.

The government is the largest among HZL’s minority shareholders while Anil Agarwal-owned Vedanta holds the majority stake of 64.92%.

As per Sebi regulations, related party deals require the approval of minority shareholders by a majority. As per Sebi norms, all entities falling under the definition of related parties of the promoter cannot vote to approve related party transactions in the EGM. The provision essentially seeks to ensure that the resources of a company are not siphoned away by the promoters and that the interests of such minority shareholders are secured.

On January 19, the HZL board approved its proposal to buy Vedanta’s global zinc assets despite the opposition of the three government nominee directors from the ministry of mining.

The Centre, which has mobilised Rs 31,106 crore so far in FY23, is banking on the stake sale to meet the revised disinvestment target of Rs 50,000 crore for FY23. It could also sell another portion in HZL next year to meet the disinvestment receipts target of Rs 51,000 crore for FY24.

After Hindustan Zinc was privatised in 2002-03 in favour of Vedanta, the Centre’s stake has been categorised as the public float.

Vedanta’s run-ins with the government concerning HZL are not new. Last year, the Centre and Vedanta had mutually decided to end an arbitration concerning the second call option demanded by Vedanta in the residual stake sale.

In 2002, Vedanta (earlier known as Sesa Sterlite) bought a 26% stake in HZL, India’s largest zinc/ lead miner. It exercised the first call option in 2003 and acquired an 18.9% additional stake in HZL. Vedanta later acquired another 20% stake in the company through an open offer, increasing its shareholding to 64.92%.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 21-02-2023 at 06:30 IST
Exit mobile version