The Centre may opt to retain a part of its remaining stake in Hindustan Zinc Ltd (HZL) for an extended period, instead of divesting its entire stake, as the potential investors have expressed their preference for the government to maintain a minority shareholding in the company.
Following a recent decision by HZL to buy the zinc assets of parent Vedanta despite opposition from the government nominees on its board, the potential investors expressed their concerns during roadshows, and requested the government to stay on.
On 19 January, the HZL board gave its approval to acquire Zinc International’s assets held by THL Zinc Ventures Ltd (Mauritius), which is a wholly-owned subsidiary of Vedanta, through THL Zinc (Mauritius) in an all-cash deal of $2.98 billion. THL Zinc would have become a wholly-owned subsidiary of Hindustan Zinc.
After the board approved the deal despite opposition from three government representatives, the mines ministry wrote to the market regulator stating its opposition to the deal. According to the ministry, the HZL board’s decision to acquire these assets is a related-party transaction and violates minority shareholder rights.
The Union finance ministry, too, is opposed to related-party transactions since funding the acquisition of Vedanta’s assets through HZL’s cash reserves and debt will impact the valuation of the government’s stake.
“Investors asking the government to stay is a comment on the credibility of corporate India. Such actions (by HZL board to approve the acquisition of Vedanta’s zinc assets) do raise questions and concern investors,” said a senior government official, seeking anonymity.
Following the opposition from the government, HZL has junked its acquisition plan. Chief executive Arun Misra reportedly said: ‘The proposal to acquire the international assets was not completely off the table and that other financial routes such as share swap were being considered instead of an all-cash transaction.”
Officials said transaction will not materialize since it required a nod from a majority of minority shareholders. Since government was a minority shareholder for this deal, its assent will be critical for proposal to move ahead. As of date, Vedanta owns 64.9% stake in HZL, while government holds 29.5%.
“The company unofficially informed us that they will not go ahead with the acquisition plan,” said another government official, also seeking anonymity.
In an earlier interview with Mint, Misra said a company like HZL cannot limit its size and capacity to where it is today; it must grow much beyond and tap other mineral sources since mineral reserves in India and Southeast Asia—HZL’s key markets—may exhaust.
A government official refuted the firm’s claims. “The promoter company owns these assets. There are several ways to get into an alliance with the company and use its resources and an outright purchase of those assets should be the last option.”
Meanwhile, the government is looking at selling 5-8% equity of its shareholding in the listed entity. At the current market cap of HZL, a 5% stake sale could fetch more than ₹6,400 crore.
The government has set a divestment target of ₹51,000 crore for FY24.
