Hindustan Zinc may not go ahead to buy Vedanta’s Zinc global biz amid Centre’s opposition

Hindustan Zinc Ltd (HZL), a subsidiary of Vedanta Limited, may not go ahead with the preplan of buying parent Vedanta Resources’ global zinc business for $2.98 billion in cash. The Centre had opposed the proposed cash deal before and warned of legal action. The cash deal was crucial as Anil Agarwal-led Vedanta Resources is looking into options to reduce its debt burden.  

A report in ET quoted two sources who said that HZL has dropped the plans as of now. Another source said that HZL hasn’t presented any non-cash deal to the government yet. “HZL is likely to hold its next board meeting on April 21, by which time the current proposal would have lapsed,” the sources said.  

As per the company rules, if the HZL board's January 19 proposal isn't endorsed by shareholders within three months, it will automatically lapse, the official told ET. 

In HZL, which was divested over two decades ago, Vedanta has around 64.92 per cent stake, whereas the government holds a 29.54 per cent stake.  

Therefore, for any related-party transaction, minority shareholders should vote and approve the proposal. Here, Anil Agarwal-controlled Vedanta group needs the government’s nod as it has almost 30 per cent stake in the mining company. 

Govt’s resistance to Vedanta proposal 

The Centre was looking up to sell a stake in Hindustan Zinc (HZL) via the Offer For Sale (OFS) mode. Agarwal was hopeful for this divestment to sail through, as the non-receipt of the government’s approval is a hurdle in pursuing the proposed sale of Vedanta’s Zinc International Assets with Hindustan Zinc.  

In January, Vedanta said the proposed sale of its Zinc International assets could be in a phased manner for a cash consideration of up to $2,981 million. 

If Vedanta acquires the additional 6 per cent stake in Hindustan Zinc, the government’s share would come down to 24 per cent from 29.54 per cent. That would mean the Centre would lose the special rights over the company. 

The government is not in favor of selling its entire stake directly to Vedanta keeping the interests of minority shareholders in mind. 

Vedanta debt concerns 

Following the debt concerns of Adani Group companies following Hindenburg Research’s scathing report, Vedanta Resources’ debt management came under the lens. 

In February, Vedanta Resources cut down its debt burden by $2 billion as the market was getting anxious following Adani Group’s stocks' steep fall. The Mumbai-listed company had a net debt of $9.66 billion as of March 31, 2022, as per information available on its website. 

After repayments and borrowings, the Agarwal-led company presently has an outstanding debt of $7.7 billion of which $3 billion is due for repayment in the fiscal starting April 2023, as per news reports. 

 On Monday, rating agency S&P Global Ratings said Vedanta Resources Ltd will likely have enough liquidity until December 2023.  

The rating agency said that: “Vedanta Resources Ltd will likely have enough liquidity until December 2023. The group is close to securing about $1 billion of funding at one of its operating companies.” 

The company is reportedly discussing with banks and investors multiple funding options for at least another $2 billion. 

S&P in its note said: “Successful closure of some of these discussions will facilitate the payment of its $1 billion bond due January 2024. Failure to demonstrate a credible refinancing plan at least six months before the bond maturity could lead to downside rating pressure.” 

It added that its B- rating on Vedanta Resources with a stable outlook “reflects its expectation the company will secure additional funds to support liquidity beyond December 2023”. 

Also read: Vedanta has $3 bn debt servicing obligations in FY24, says S&P in latest bulletin

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