HZL stake sale put on hold for this fiscal

HZL stake sale put on hold for this fiscal

hindustan zinc, vedanta
The government, which holds 29.54% (Rs 38,000 crore at current market price), is the largest among HZL’s minority shareholders while Vedanta holds the majority stake of 64.92%. (File photo)

The Centre has decided to postpone the sale of its residual stake in Hindustan Zinc (HZL) beyond the current fiscal, considering the fall in investor sentiment after the Anil Agarwal-promoted company proposed to acquire Vedanta group’s global zinc assets in a $2.98-billion ‘related-party’ cash deal.

“Given the size of the residual stake, we have to see that enough buyers are there. The current environment is not conducive for that,” a senior official told FE, confirming the move to put off the offer for sale (OFS), which was earlier slated to be completed by March-end.

While the decision would lead to a shortfall in the disinvestment receipts from the revised estimate of Rs 50,000 crore for the current fiscal, the official indicated that extra dividend receipts from the central public sector enterprises (CPSEs) could bridge a large part of the gap.

On January 19, the HZL board approved its proposal to buy promoter Vedanta’s global zinc assets in a ‘related-party’ transaction despite the opposition of the three government nominee directors from the mining ministry. The board decision came as a jolt from the blue, derailing its upcoming OFS.

The government, which holds 29.54% (Rs 38,000 crore at current market price), is the largest among HZL’s minority shareholders while Vedanta holds the majority stake of 64.92%.

The government fears that the board’s decision, if implemented, could prevent it from realising maximum value from the planned sale of a portion of its residual stake in the company. Since the HZL board resolution on January 19, its share price has fallen by over 20%.

In its letter to the company on February 17, 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.

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It also suggested HZL could instead explore “cashless” options to acquire the assets. There are also valuation concerns with regard to Vedanta’s global zinc assets, the official added.

FE had reported on February 10 that the government will veto the HZL board’s plan when the proposal is brought to the company’s shareholder’s meeting (EGM). The government feels the ‘related-party transaction’ is not in the interest of minority shareholders.

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 such transactions in the EGM. The provision essentially seeks to ensure that the interests of such minority shareholders are secured. HZL has acknowledged that the deal can be taken forward only with minority shareholders’ approval in a general meeting.

The Centre has mobilised Rs 31,106 crore so far in FY23, which is 62% of its revised disinvestment target for the year. On the other hand, it has garnered Rs 50,280 crore in dividend receipts from CPSEs so far in the current fiscal, which is Rs 7,280 crore more than the target of Rs 43,000 crore. Also, given robust tax revenue receipts and lower utilisation of funds for centrally-sponsored schemes, the government would comfortably meet the fiscal deficit target of 6.4% of GDP in FY23.

Vedanta’s parent Vedanta Resources (VRL) was banking on the proposed global zinc asset sale to HZL to address its liquidity issues.

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Last week, Moody’s Investor Service downgraded the corporate family rating (CFR) of London-based VRL over increasing risk in refinancing debts.

The development follows a February report by S&P Global Ratings that the liquidity of VRL hinges on its fund-raising abilities.

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First published on: 13-03-2023 at 05:30 IST
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