Cabinet approves sale of govt's residual stake in Hindustan Zinc

Paves way for estimated Rs 20k-cr revenue mop-up

After years of dallying, the government on Monday paved way for sale of its 29.5 per cent residual stake in Hindustan Zinc Ltd (HZL), the world's second-largest zinc producer that is controlled by Anil Agarwal's Vedanta Group. The move might help the government, struggling to contain its fiscal deficit at 4.8 per cent of gross domestic product this financial year, raise about Rs 20,000 crore.

The Cabinet Committee on Economic Affairs (CCEA) on Monday approved the sale of residual stake; the modalities will now be finalised by the Department of Disinvestment. "It has been cleared," Commerce & Industry Minister Anand Sharma told reporters after a meeting of CCEA, headed by Prime Minister Manmohan Singh.

The PM had last month favoured sale of stake in HZL and Balco through an open auction and asked the mines ministry to seek the attorney-general's opinion. In his view, the A-G had agreed that the stake sale should be through an auction.

CLOSE TO TARGET

• 29.5%: Govt's stake in Hindustan Zinc
• Rs 16,000 cr: Current market value of govt's HZL stake
• Rs 23,632 cr: Cash HZL is sitting on at present
• Rs 20,000 cr: The Value the govt is expected to get for its HZL stake
• Rs 14,000 cr: Govt's target to raise through sale of stake in non-govt firms this year
• Rs 40,000 cr: Govt's revenue target through direct disinvestment

Vedanta had earlier offered Rs 17,000 crore to buy out the government's stake in both HZL and Balco (where the government holds a 49 per cent stake). The company already has its shareholders' approval to increase its offer to up to Rs 21,637 crore ($3.48 billion) for buying out shares. The government has yet to take a call on Balco stake sale.

At the current market valuation, the government's HZL stake is valued around Rs 16,000 crore. But it is expected to get a higher price through the auction route, as HZL is sitting on cash reserves of Rs 23,632 crore. Vedanta Chairman Anil Agarwal had last month said: "We are getting the indications but it is a democratic process. Sometimes, it gets delayed but it (stake sale) will happen."

HZL, which has a zinc-lead output capacity of 1 million tonnes per annum and is also a leading silver producer, is one of Vedanta's profitable arms. On Monday, the HZL scrip rose 4.29 per cent from its previous close on BSE to end the day at Rs 135.

The government has been struggling to spur its revenues and meet its fiscal deficit target of 4.8 per cent of GDP in 2013-14. It had budgeted raising Rs 14,000 crore through sale of residual stake in non-government firms and another Rs 40,000 crore through direct disinvestment. By offloading equity in HZL, it is likely to exceed its Rs 14,000-crore target.

So far this year, the government has raised Rs 3,000 crore from disinvestment, including Rs 1,637 crore through the recent stake sale in Power Grid Corp.