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Cabinet approves disinvestment of 29.54% stake in HZL

With the privatisation of BPCL now on the backburner, the sale of the HZL stake is likely to be the largest deal this year for the government in terms of revenue potential.

As per the Supreme Court order dated November 18, 2021, the Centre can sell itsresidual stake in HZL in the open market in accordance with the Sebi rules.
As per the Supreme Court order dated November 18, 2021, the Centre can sell itsresidual stake in HZL in the open market in accordance with the Sebi rules.

With the government finances coming under stress due to the latest excise duty cut on petrol and diesel, the Cabinet on Tuesday approved the sale of the Centre’s residual 29.54% stake in Hindustan Zinc (HZL) worth about Rs 38,000 crore at the current market prices, to boost non-tax receipts, sources said.

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With the privatisation of BPCL now on the back burner, the sale of the HZL stake offers the government a large revenue potential in terms of value.

As per the Supreme Court order dated November 18, 2021, the Centre can sell its residual stake in HZL in the open market in accordance with the Sebi rules.

Recently, the Centre and Vedanta (current promoter of HZL) had decided to mutually end an arbitration concerning the second call option demanded by Vedanta in the residual stake sale.

In 2002, Vedanta (earlier known as Sesa Sterlite) had 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%.

To acquire the government’s remaining 29.5% share in HZL, it had exercised the second call option in 2009, but this was rejected by the government. Following this, Vedanta initiated arbitration proceedings against the government in the same year.

Vedanta could bid for a 5% stake when the government sells its residual stake in HZL, the company’s chairman Anil Agarwal had said earlier.

The government is scouting for additional revenues as extra expenditure over the budget estimate is seen about Rs 2 trillion on account of higher subsidies on fertiliser, free grains scheme and LPG subsidy for Ujjwala beneficiaries in FY23. The excise duty cuts on auto fuels on last Saturday would also result in a revenue loss of about Rs 85,000-90,000 crore during the little over 10 months left in the current fiscal.

Besides some extra borrowing, finance ministry officials are banking on additional tax revenues to cover bulk of the extra expenditure and also partly by raising more resources via government disinvestment programme in FY23. There is an expectation that the disinvestment target of Rs 65,000 crore will be exceeded by around Rs 20,500 crore, given the receipts from LIC IPO, which was not budgeted.

Besides HZL, topping the government’s disinvestment agenda will be privatisation of IDBI Bank and Container Corporation in this fiscal, department of investment public asset management secretary Tuhin Kanta Pandey had told FE last week. It may also look at offloading a part of the indirectly-held stake in private-sector firm ITC. The government may also sell its stake held via the Specified Undertaking of the Unit Trust of India in Axis Bank at opportune times this year, besides trying to complete sale of Shipping Corporation of India (SCI).

SUUTI’s 7.92% stake in ITC is worth about Rs 27,300 crore at present and 1.55% stake in Axis Bank is worth Rs 3,200 crore at the current market prices.

The Centre’s proposed 30.8% stake sale in the multi-modal logistics company ConCor was worth about Rs 11,700 crore at the current market prices.

Expression of interest (EoI) for IDBI Bank and financial bids for SCI are likely to be invited soon. Currently, LIC (49.24%) and the government (45.48%) together hold 94.78% stake in IDBI Bank. The Centre’s stake in IDBI Bank is worth about Rs 16,400 crore. The proceeds from IDBI Bank will depend on how much it sells in the bank as LIC will also dilute stake in the lender.

BPCL’s privatisation, which has been held up for over a year, has hit a dead-end, as potential investors have turned more sceptical of “the lack of pricing freedom” with state-owned fuel retailers, besides the global shift for greener energy.

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