Metals & Mining News

Hindustan Zinc may not act on proposal to buy Vedanta’s zinc biz

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New Delhi: Facing strong opposition from the government, Hindustan Zinc Ltd (HZL) is unlikely to act on the proposal to buy parent Vedanta’s global zinc business in a $2.98 billion cash deal, said people aware of the matter.

“HZL isn’t going to pursue this plan now,” one of them told ET.

Another person said, “HZL hasn’t presented any non-cash deal option to the government yet. It is likely to hold its next board meeting on April 21, by which time the current proposal would have lapsed.”

As per the rules, if the HZL board’s January 19 proposal isn’t endorsed by shareholders within three months, it will automatically lapse, the second person added.

An HZL spokesperson said the date for the next board meeting hasn’t yet been “declared,” while declining to comment on the proposed cash deal.

hzl

The government has warned of legal action if the company went ahead with the proposed deal. HZL was privatised over two decades ago but the government still holds a 29.54% stake in the miner. Vedanta holds 64.92% of HZL.

In the case of a related-party transaction, minority shareholders need to approve the proposal by a majority. In this case, the proposal cannot pass without the government’s consent, given its nearly 30% stake in HZL.

The cash deal would have allowed Vedanta Resources, the parent company of Vedanta, to reduce its debt burden.

Stock Price Down
The deal spooked investors, pushing HZL’s share price down.

The uncertainty also forced the government to defer a plan to sell a part of its stake in HZL in March via the offer for sale (OFS) route.

The government also wrote to the capital market regulator Securities and Exchange Board of India (Sebi), reinforcing its opposition to the HZL board’s plan.

Since the HZL board resolution on January 19, the company’s share has dropped 21%, compared with a 3% fall in the BSE Sensex. On Monday, HZL closed at Rs 297.95 on the BSE, up 1.6%.

On March 16, the company declared a Rs 26 per share dividend, the fourth for FY23, entailing a Rs 10,985.83 crore cash outgo, the bulk of which will go to Vedanta and the government.

S&P Global Ratings in February said that Vedanta Resources’ credit ratings might come under pressure if it is unable to raise $2 billion and sell its overseas zinc assets.

Vedanta had earlier said all payments due up to March 31 had been made and that it had slashed debt by $2 billion in the past year.

On April 3, S&P said the mining and metals giant has debt servicing obligations of about $3 billion, including interest and inter-company loans, in FY24. “It will have at least another $1-billion obligations that require funding until March 2024,” it said.

S&P expects the company to secure additional funds to support liquidity beyond December 2023. “The company is discussing with banks and investors on multiple funding options for at least another $2 billion,” S&P said.

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