Vedanta-Hindustan Zinc deal worry may hit divestment plan for FY23

Centre's opposition to the Vedanta-HZL deal is on account of valuation and the deal being a related-party transaction

The Centre’s plan to sell its residual stake in Hindustan Zinc (HZL) could face a stumbling block because of its opposition to the company’s proposed $2.98-billion acquisition of zinc assets from Vedanta.

The Centre’s opposition is on account of valuation and the deal being a related-party transaction.
 

The recent development will likely impact the ongoing divestment plan because the issue has created uncertainties among investors, making them cautious about picking a stake in HZL, a senior government official told Business Standard.
 

The government had expected to sell part of its stake in HZL this fiscal year. The transaction, if executed, could have helped the government to meet its revised sell-off target of Rs 50,000 crore for FY23. 
 

The stake could fetch the government Rs 35,000-40,000 crore, depending on the share price of the stock.

The government owns 29.53 per cent in HZL while Vedanta is the largest shareholder in the company.

The government plans to disinvest the residual shareholding in the open market in tranches. It has appointed five merchant bankers for divesting the stake.

“Roadshows could have begun. However, we decided to postpone them for some time,” the official cited above said, adding, the size of each tranche had not been finalised.
 

The government in its dissent has even said it will continue to oppose the transaction and could explore legal avenues. It said it wanted HZL to explore other cashless methods to acquire mines.
 

Explaining the rationale, the official said there was a lack of information in many aspects. For instance, there was no analysis of whether the proposed transaction was adding value to the company and its shareholders. Even the pricing and valuation on which they arrived at were not clear, he said.

He said any such transactions should effectively balance the interests of acquirers and public shareholders, and should maintain greater transparency.

In a letter to HZL, the Ministry of Mines had said the deal was a related-party transaction and the government would like to reiterate its dissent.

HZL in a separate filing said the ministry’s letter would be placed before the company’s board and a meeting of shareholders to approve the deal was yet to be called.

“A majority of the minority shareholders voted against the deal during a meeting. This is 29.5 per cent out of the 36 per cent held by minority shareholders,” the official pointed out.
 

Related-party transactions are deals between two companies that belong to the same group or if the promoter group of one company has significant interest in the other. 

According to regulatory norms, any related-party transaction needs to be approved by minority shareholders. The promoter group is not allowed to vote in such resolutions.
 

In 2002, the government had sold 26 per cent of HZL to the Anil Agarwal-led group.