With the government agreeing to consider Sterlite’s fresh offer to buy the residual stake in Bharat Aluminium Company Ltd (Balco) at a mutually agreeable price, a resolution of the long stand-off between Vedanta Resources and the central government is in sight. Sources familiar with the development said this would pave the way for Hindustan Zinc Ltd’s (HZL’s) stake buy, as well.
They said the company was looking to push the government to sell its 29.5 per cent stake in HZL at the same time. A company official close to the development told Business Standard that Sterlite, an arm of Vedanta, had been looking to buy the government’s stake in HZL for a long time. “With the two parties finally heading somewhere with regard to the Balco stake pricing, Vedanta is keen to push for HZL’s stake,” he said.
The sources, however, could not confirm whether the company and the government had initiated talks on HZL. An email sent to the company remained unanswered.
| TARGET: HINDUSTAN ZINC LTD |
| * 8,79,000 tonnes Zinc production capacity per year. Has 85% of the zinc market in India. Has a lead capacity of 1,85,000 tonnes |
| * Rs 12,000 cr Investment in expansion since HZL was divested in 2002 |
| * 1,79,000 kg Silver production in 2010-11, up from 47,000 kg in 2002. The largest primary producer of silver in India |
| OWNERSHIP |
| * 65% Stake held by Sterlite (majority-owned by Anil Agarwal's Vedanta), 29.5% by the government |
| * MARKET CAPITALISATION Rs 52,000 crore NET PROFIT Rs 4,900 crore in FY11 PROFIT AFTER H1 has crossed Rs 2,800 crore |
| * Rs 15,000 cr The price of government holding in HZL at current market rate of Rs 125 per share |
| * Rs 22,706 cr Sterlite’s cash and cash equivalents as on September 30, 2011, its debt stood at Rs 14,900 crore |
Another source said since HZL was a listed company, the valuation was known and transparent. “Since Vedanta is agreeing to buy the government’s stake at a mutually agreed price, it will look to apply the same formula for the HZL stake with the share price as a base. What is more comforting in this case is that the company is listed and the valuation is public,” he said.
The government is looking to meet its disinvestment target to lower the ballooning fiscal deficit and is eyeing every possible opportunity to do so.
In 2001, Sterlite had bought a 51 per cent stake in Balco from the government for Rs 551 crore. It had a call option to buy the rest, later declared invalid by the government, and the two fought over this.
Sterlite and the government has 65 per cent and 29.5 per cent stake in HZL, respectively. Vedanta owns 54.6 per cent in Sterlite. The market capitalisation of HZL as on date is Rs 52,000 crore. It is a highly profitable company and posted a net profit of Rs 4,900 crore in FY11. Its profit in the first two quarters of this financial year has crossed Rs 2,800 crore. At the current market price of Rs 125 a share, the government’s 1.25 billion shares in HZL are worth Rs 15,000 crore.
As on September 30, Sterlite had cash and cash equivalents of Rs 22,706 crore on its books and a debt of Rs 14,900 crore. At the end of the second quarter, cash on HZL’s books was Rs 16,295 crore. HZL is a zero debt company.
HZL was divested in 2002 and since then it has invested Rs 12,000 crore in its expansion plans. It is the world’s largest integrated producer of zinc at 879,000 tonnes per year.
The company commands 85 per cent of the zinc market in India. Its lead production capacity stands at 185,000 tonnes per year. It is also India’s largest primary producer of silver. From 47,000 kg in 2002, the company’s silver production grew to 179,000 kg in 20010-11.
