Government to exit Hindustan Zinc Ltd, but over an extended period

The Indian government is gearing up to sell its remaining stake in Hindustan Zinc Ltd (HZL), a subsidiary of Vedanta, in smaller tranches over an extended period, aiming to maximise its value, according to a report by the Financial Express. The residual stake is valued at approximately Rs 40,000 crore at current market prices. The government's planned stake sale was halted last year due to Vedanta's proposal for a related party transaction, adversely impacting investor sentiment.

Presently, Vedanta Ltd holds a 64.92 per cent stake in HZL. In 2002-2003, HZL, India's largest zinc/lead miner, was privatised in favour of Vedanta, with the government's 29.54 per cent stake categorised as public float. In 2021, after Vedanta lost the case to acquire the residual stake from the government, the Supreme Court allowed the government to exit by offloading the stake through public offers.

Discussions with merchant bankers are underway to initiate the first offer for sale (OFS) of HZL shares within the current financial year. HZL's share price closed at Rs 321.7 on Monday, marking a 0.99 per cent increase from the previous closing price on the BSE.

The delayed OFS in HZL is attributed to Vedanta's proposed $2.98 billion related party transaction, which the government rejected.

In January 2023, the HZL board approved a plan to purchase Vedanta's global zinc assets in a related-party transaction, leading to the postponement of the OFS. The government opposed this move, citing Sebi regulations that mandate minority shareholders' approval for related-party deals. HZL paid a special dividend last year to address liquidity issues, generating around Rs 9,000 crore for the government, helping bridge the shortfall in disinvestment receipts.

"The government will exit HZL, but it will be a long haul. Nearly 30 per cent or one-third of a large company can't be offloaded in the market in a shorter period via the public offer route. Buyers have to be found, so, it has to be gradual," an official told FE.

Hindustan Zinc is the country's largest and the world's second-largest integrated zinc producer. In the second quarter of the ongoing financial year, the company reported a marginal drop by one per cent in its mined metal production. Integrated zinc production went down two per cent as compared to the same period last year and was down 12 per cent sequentially.