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The Anil Agarwal-promoted Vedanta group, which controls Hindustan Zinc Ltd (HZL), doesn't have first right to the government stake in HZL. However, according to analysts, Vedanta's chances are high because there won't be too many serious contenders for the government's residual stake in HZL.
On Monday, the government had decided to auction its 29.5 per cent stake in HZL. However, the modalities for the auction, expected to fetch Rs 20,000 crore, are yet to be worked out by the divestment department.
"The auctioning, if it goes through, would be beneficial for both Sesa Sterlite and Vedanta, which would get access to HZL's cash flows of around Rs 24,000 crore," said Goutam Chakraborty, analyst at Emkay Global. Earlier, the acquisition of international zinc business could not be done under HZL because of the government's concern on a deal outside the country, Chakraborty added. If Vedanta gets full control of the company, consolidation of the zinc business would happen.
Another analyst, who did not wish to be named, said apart from Vedanta, no serious bidder or investor was expected to participate in the auction. "Due to Vedanta's control, not many would participate in the bidding process because a minority stake won't give one any say in the company."
Moreover, the government moght fix the floor price for the sale at what Vedanta had offered to buy out the stake earlier, the analyst added.
Vedanta had earlier offered Rs 17,000 crore to buy out the government's stake in both Hindustan Zinc and Balco (in which the government holds 49 per cent stake). Vedanta already has its shareholders' approval to increase its offer to up to Rs 21,637 crore ($3.48 billion) for buying out stakes.
At the current market valuations, the government's 29.5 per cent stake in HZL is valued at Rs 16,000 crore but it is expected that the value through the auction would be much higher as HZL is sitting on huge cash reserves. HZL's scrip closed two per cent higher at Rs 135.20 a share on Tuesday.
Last month, Vedanta Chairman Agarwal had said the firm had received positive indications from the government on the matter. "We are getting indications but it is a democratic process. Sometimes it gets delayed but it (stake sale) will happen."
HZL is one of the profitable subsidiaries of Vedanta and one of the largest integrated producers of zinc-lead with a capacity of one million tonnes a year. It is also a leading producer of silver.
Agarwal had bought controlling stakes in both HZL and Balco through divestment during the time of the National Democratic Alliance in 1998-2004.
The government is struggling to shore up its revenues to contain the fiscal deficit at 4.8 per cent of the gross domestic product in 2013-14.
