AG advice notwithstanding, HZL's fate in SC's hand

At present, the government owns 29.5% of HZL and 49% of Balco

Even as the Attorney General of India has suggested the central government sell its stake in Hindustan Zinc Ltd (HZL) and Bharat Aluminium Company Ltd (Balco) to the majority owner Vedanta group, corporate lawyers say the final decision has to be taken by the Supreme Court as the matter is still pending with it.

"This will take a lot of time as Parliament has to first approve the sale and then the Supreme Court has to pass an order to go ahead with the sale," a corporate lawyer said.

At present, the government owns 29.5 per cent of HZL and 49 per cent of Balco.

Lawyers say the apex court is looking into the entire issue of taking permission from Parliament, as the company was formed through a statute. The Supreme Court had earlier stayed the divestment of government stakes on state-run Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp Ltd in 2003 as those were formed through a statute and required Parliament's approval for divestment. HZL has a similar issue on the sale of residual stake to Vedanta group, say lawyers.

As per a deal between the government and Vedanta, the Anil Agarwal-led London-based group had the option to buy back the government's 29.5 per cent stake in HZL. Vedanta had first offered Rs 17,275 crore for buying out the remaining stake of the government in both HZL and Balco.

Vedanta had valued the government's stake in HZL at Rs 15,493 crore. But the company's board later sweetened the offer by up to 15 per cent to about Rs 18,606 crore.

It had also agreed to raise the offer price for Balco by 63 per cent to $550 million (Rs 3,560 today). As per the government plan, it will auction the shares and Vedanta will be given an opportunity to match it. But all these issues will now be decided by the Supreme Court.

The HZL stock gained 9.37 per cent to Rs 117.85 on Thursday on BSE, while the benchmark Sensex closed up 2.27 per cent at 18,312.94 points.

Analysts say apart from Vedanta's takeover of the government's stake in the company, the recent spurt in the company shares is also due to the fact that HZL will be the key beneficiary of rupee depreciation as its entire revenue is dollar-linked and its dollar-denominated costs are limited to imported thermal coal. Analysts say a five per cent depreciation of the rupee against the dollar could lift its earnings by five per cent this year.

In an interview with this newspaper early this year, Vedanta group chairman Agarwal said after his takeover of the company, HZL has made huge profits and has turned around under the new management.

The company is now the world's largest integrated zinc and lead producer, with current production capacities of 879,000 tonnes per annum (tpa) of zinc and 185,000 tpa of lead. The company accounts for more than 95 per cent of total zinc and lead primary production in India.

Vedanta is keen to take over the company as it will give it access to the company's cash and investments which is worth around Rs 19,218 crore as on March this year.