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Vedanta Plc, the London-based metals and energy giant, might sweeten its offer for the Union government’s stake in Hindustan Zinc Ltd (HZL) by another 10 per cent. And, then, merge it with its India holding company, Sesa Sterlite Ltd, by early next financial year, say bankers.
These are part of the recommendations made by bankers who have made presentations to Vedanta officials. The government and Vedanta are currently in discussion on the stake sale to the Anil Agarwal-led company. Vedanta is aiming to buy the shares by the end of this year.
A merger of Sesa Sterlite with HZL will help the latter to repay the loans worth $3.5 billion it took to acquire Cairn India; this will come for repayments over the next three years. The Vedanta group holds call options on the government’s shares.
When spoken to, a Vedanta official said they did not comment on market speculation. Hindustan Zinc was trading at Rs 126 a share on Friday. The government owns 29.5 per cent in HZL and its stake is valued at Rs 15,630 crore. A 10 per cent rise will sweeten the offer by another Rs 1,500 crore and the total cost to Vedanta would be Rs 17,000 crore. This money, plus another Rs 2,150 crore from the sale of its remaining 49 per cent stake in Bharat Aluminium (Balco; the rest is with Vedanta), will help the government to meet its disinvestment targets and help plug the fiscal deficit, say bankers.
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What is important for Sesa Sterlite is the Rs 21,482 crore of cash and investments of HZL that could be used to repay the new combined entity’s debt. Under Vedanta's management, HZL has been turned around successfully, making a profit of Rs 6,899 crore in 2012-13 on a total income of Rs 14,732 crore. In a complex restructuring announced last year, Vedanta merged its two Indian companies, Sesa Goa and Sterlite, into a combined entity called Sesa Sterlite. The new entity — it got approval from the courts recently — holds stake in all of Vedanta’s Indian companies, including in Cairn India and HZL. Vedanta has also transferred its entire dollar debt to Sesa Sterlite, taken to buy Cairn India. With this, Sesa Sterlite had net debt of $6.6 billion as on March this year. Once Sesa Sterlite buys the government share, bankers say its stake will go up to 95 per cent and, by the rules, will either have to bring this down to 75 per cent or go for delisting. A banking source said Sesa Sterlite will go for delisting the company and then merging it with the parent company after buying out the minority shareholders.
A legal source said in spite of the Attorney General’s view that there were no legal problems in the Indian government selling its stake in HZL and Balco to the Vedanta group, it will still need ratification from the Supreme Court, since the latter had stayed a similar earlier sale by the government. If the government sells HZL’s stake to Vedanta, then it needs to take Parliament approval.
Lawyers say the apex court is looking into the entire issue of whether or not this needs to go through Parliament, as the company was formed through a statute. The Supreme Court had in 2003 stayed the divestment of some petroleum companies for this reason.
