Government looks to sell stake in Hindustan Zinc

Industry: Financial services 2016-10-27

NEW DELHI: The government is yet again looking to monetise its stake in Hindustan Zinc and may suggest a share buyback offer to the company controlled by Vedanta’s Sterlite Industries besides seeking a special dividend. The government owns 29.59% stake in the firm that is worth over Rs 30,000 crore at current market prices.

“The administrative ministry, mines ministry, is looking at all options which include HZL (Hindustan Zinc Ltd) to come up with a share buyback offer,” said a senior government official aware of the deliberations.

The government may also explore legal options to sell its stake in Hindustan Zinc, the person said.

Another government official said that pending a decision, the government may seek special dividend from the firm.

“HZL is a cash-rich firm and should give dividends to its shareholders,” the person said. At the end of March 2016, HZL had reserve and surplus of around Rs 36,500 crore. Its scrip closed at Rs 252.15 on the Bombay Stock Exchange on Wednesday, just shy of 52-week high Rs 262.8 touched earlier this week.

For 2016-17, the company has notified stock exchanges that its board has approved a dividend policy wherein it will declare an annual dividend of 30% of profit after tax, or 5% of net worth.

This is similar to the new dividend policy announced for state-run firms. On Monday, HZL notified exchanges that it will only offer a normal interim dividend to its shareholders.

An email sent to Vedanta remained unanswered as of press time Wednesday. For the year ended March 2016, the firm had declared a special golden jubilee dividend of 1200%.

The government had then received Rs 2,995 crore. This fiscal the government has managed to raise Rs 21,000 crore by nudging five state-run firms to go for share buyback. The list includes blue chip firms such as Coal India and Bharat Electronics. That option is being explored in the case of HZL as well.

Hindustan Zinc was incorporated in 1966 as a state-run firm after the central government took over erstwhile Metal Corporation of India Ltd through the promulgation of an ordinance.

In April 2002, the government sold 26% stake in the company to Sterlite Industries, which picked up another 18.92% the following year through the exercise of the ‘first call’ option.

Selling the rest of its HZL stake will help the government make some progress in its disinvestment push. The government has set a target of raising Rs 56,500 crore through direct stake sales this year, but so far it has raised only around Rs 4,000 crore. In January 2016, responding to a petition by HZL employees’ union, the Supreme Court had questioned the proposed fresh sale of government’s stake in the company.

“If the company is making profits, then let the government also make some profit from the remaining stake. Why disinvest in that case,” the court had observed.

The government has already appointed merchant bankers for selling its stake in blue chip firms held through specified undertaking of the Unit Trust of India (SUUTI).