Government Allowed to Sell Residual Stake in Hindustan Zinc

The Honourable Supreme Court has allowed the government of India to sell its residual stake in Hindustan Zinc Ltd. The government and DIPAM are yet to take a call on whether this stake sale would be in a single tranche or in multiple tranches.

They also need to take a call on whether the sale would be done through an offer for sale or via a private placement with a PE fund or a strategic investors. These modalities are yet to be worked out.

Currently, 64.92% of the equity stake of Hindustan Zinc is held by the promoter group i.e. Vedanta group, belonging to Anil Agarwal.

The government of India holds 29.54% in HZL while the balance 5.6% of Hindustan Zinc Ltd is held by the public shareholders including mutual funds and foreign portfolio investors. Now the government can sell its entire 29.54% stake in the company.

At the current market price of Rs.323, the market cap of Hindustan Zinc works out to Rs.136,000 crore. The government stake of 29.54% in Hindustan Zinc would be valued at around Rs.40,200 crore.

This would go a long way in boosting the government inflows for the year and help take them closer to the annual disinvestment target of Rs.175,000 crore. Even with LIC and BPCL divestments, HZL would be the much needed boost to divestments.

The stake in Hindustan Zinc was first sold by the government to Vedanta via competitive bidding. At that time 26% stake in the company was sold to Vedanta (formerly Sterlite). Subsequently, the acquirer made an open offer to the public for buying out 20% of HZL as per SEBI regulations.

Subsequently, in 2003, the acquirer also exercised its call option to acquire another 18.92% stake in Hindustan Zinc, taking its stake to 64.92%.

Hindustan Zinc reported robust numbers in the September 2021 quarter with revenues and profits at record levels. With the prices of most industrial metals rallying sharply in the London Metals Exchange, the government also sees an opportune moment to hive off its stake in HZL at a good price.

It will be like two birds with one stone as the government gets a good price and also boosts its divestment target.

Interestingly, the Supreme Court also asked the CBI to initiate an investigation into why the government had sold 26% stake in HZL in 2002 instead of 25%, as it had resulted in the government stake being diluted to below 50%. That is another story altogether.