Will veto HZL plan to buy Vedanta zinc assets at AGM: Govt

Centre feels related party deal could hit residual-stake sale

Will veto HZL plan to buy Vedanta zinc assets at AGM: Govt
On January 19, the HZL board approved its proposal to buy Vedanta’s global zinc assets for $2.981 billion

The government will veto Hindustan Zinc (HZL) board’s plan to acquire promoter Vedanta’s global zinc assets when the proposal is brought to the company’s annual general meeting (AGM), a senior official told FE. The government feels the ‘related party transaction’ is not in the interest of minority shareholders, and might prevent it from realising maximum value from sale of its residual stake sale in HZL, he said.

The government is the largest among HZL’s minority shareholders — it holds 29.54% in the company while Anil Agarwal-owned Vedanta holds the majority stake of 64.92%.

As per the Securities and Exchange Board of India’s (Sebi) regulations, related party deals require the approval of minority shareholders by a majority. Thanks to the size of its holding, the government is in a position to invoke this rule.

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 AGM or 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.

The development comes just ahead of the government’s plan to sell a portion of its 29.54% (worth Rs 41,000 crore at current market prices) in HZL before March 2023.

On January 19, the HZL board approved its proposal to buy Vedanta’s global zinc assets for $2.981 billion despite the opposition of the three government nominee directors from the ministry of mining. The government fears that proposed transaction would drain the company’s cash reserves and weigh down its share price.

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 29.54% was categorised as the public float.

After the HZL announced the board’s decision to buy equity shares of THL Zinc, Mauritius, “which comprises of shares held in Black Mountain Mining Pty Ltd, South Africa (69.6%) and THL Zinc Namibia Holdings (Pty) Ltd (100%), Namibia”, the HZL share price took a hit. The share price, which had touched a fresh 52-week high of `383 on January 19, since has slid by 14.3% to Rs 328 on Friday.

“The point is if Vedanta, the majority owner of HZL, has to make an investment like this, it has to be fully examined because it’s a related party transaction,” the official added. While talks are on between the government and Vedanta on the entire gamut of the proposed deal, the government will vote against the transaction if HZL convenes AGM/EGM to seek a nod for it, the source asserted.

In a commentary on February 8, S&P Global Ratings said Vedanta’s parent Vedanta Resources was highly likely to meet its obligations until September 2023. “However, sustaining liquidity beyond that would depend on the completion of at least one of two key ongoing transactions: a targeted $2 billion fundraising exercise, and a proposed sale of international zinc assets by Vedanta Ltd to Hindustan Zinc Ltd,” S&P said.

“The rating on Vedanta Resources (B-/Stable/–) will likely come under immediate pressure if neither of these transactions progresses over the coming weeks.”

Vedanta’s run-ins with the government with regard to 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%.

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First published on: 11-02-2023 at 05:30 IST
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