A restructuring proposal for Hindustan Zinc could scuttle the Government's divestment strategy

29 Nov 2023 , 11:41 AM

According to news reports, the government’s attempt to sell a portion of its 29.54% share in the miner through an offer for sale (OFS) this fiscal year has been further clouded by a corporate restructuring plan that the board of Hindustan Zinc Ltd (HZL) started in September.

A postponement of the stake sale procedure might potentially undermine the Center’s FY24 disinvestment goal of Rs 51,000 crore.

Vedanta Ltd., led by billionaire Anil Agarwal, owns 64.92% of HZL. The government’s 29.54% stake in HZL is worth Rs 37,532 crore at the current market rate. Although its stock in HZL remains significant, senior officials have previously stated that the government plans to gradually reduce its interest in the company in installments over time.

This is the second time in almost a year that there could be delays in the government’s plan to use an OFS to sell off a portion of its ownership in HZL.

Usually, the government keeps OFS timings a secret to avoid manipulating or speculating the market. Nonetheless, by this fiscal year’s December quarter, the HZL OFS was generally anticipated.

In order to maximize shareholder value, the HZL board requested in a meeting on September 29 that the company investigate forming distinct legal entities for each of its three primary business divisions: recycling, silver, and zinc and lead. A committee of directors was requested by the board to assess the recommendations and make recommendations for alternatives and possibilities.

The decision made by the board in September has resulted in additional uncertainty that will affect the government’s OFS schedule for HZL. Investors seek clarity,’ the previously mentioned individual stated. ‘Unless they are sure about the roadmap the company is going to implement and see the merit in it, they may not like to invest in the OFS.’

The government will make a final decision regarding the OFS based on the ruling of the HZL board.

HZL has ordered an investigation into the formation of distinct entities. The results are anticipated to be finished and presented to the board, along with any government nominees, for their consideration.

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