The legal roadblock the government was facing in selling its residual 29.5 per cent stake in Hindustan Zinc Ltd (HZL) has been removed, with the withdrawal of a public interest suit before the Supreme Court challenging the government’s decision to sell its stakes in the company.
The application, filed in 2003, was withdrawn by the petitioner this May, without giving any reason. When asked, a spokesperson for Sterlite Industries, which controls Hindustan Zinc, said, “There is now no legal roadblock for the government in selling its residual stake at market price.”
Hindustan Zinc’s market capitalisation is Rs 23,440 crore at today’s market price and the government would net at least Rs 6,195 crore if it goes ahead with the sale of its residual stake in the company.
On a standalone basis, Sterlite has around Rs 9,000 crore on its books, which it can use to buy the residual stake. HZL reported sales of Rs 5,680 crore and net profit of Rs 2,728 crore in the last financial year.
The government had sold a 26 per cent stake in HZL in 2002 to Sterlite for Rs 445 crore at Rs 40.5 a share. Besides, Sterlite got two call options to buy out the residual 48.4 per cent government stake in tranches. And, going by the guidelines of Securities and Exchange Board of India, Sterlite also made an open offer to acquire an additional 20 per cent stake from the public in April 2002.
In August 2003, Sterlite exercised its first call option and acquired a 18.9 per cent government stake for Rs 325 crore. But in 2004, the talks got derailed after the Attorney General (AG) said the call option given by the government to Sterlite for acquiring 49 per cent stake in another company, Bharat Aluminium (Balco), was illegal. The issue is now headed for arbitration next month.
The talks over HZL were also suspended, though the AG said the government could sell the residual stake there at market price. But there has been no consensus on the price yet. The court petition complicated matters further.
The HZL stock closed 2.5 per cent lower, to Rs 555.75, on the Bombay Stock Exchange today.
