It could be back to the drawing board for Vedanta Group firm, Hindustan Zinc, with the Union Mines Ministry – a minority share-holder in company – rejecting the initially proposed demerger plans of the zinc-miner.

The current proposal includes creating three separate legal entities – one for zinc and lead, another for silver, and ultimately a third for recycling business - to unlock shareholder value.

The objections by the Ministry are to be discussed at a board level, while “observations” of the management will also be taken up then.

There could be some more tweaking of proposals and discussions taken up again with the Ministry; or the proposed demerger plan could be put-off for the time being.

Value unlocking

According to Arun Misra, MD and CEO, Hindustan Zinc, said, the demerger will help improve market-cap of the company and improve in value-unlocking. The response of the Ministry, which the company received, is “yet to be taken by the board”.

“Based on the report submitted by reputed consultant, we firmly believe that the exercise of demerging Hindustan Zinc to create a silver and zinc entity separately will help in improving the market cap of the company as a whole resulting into value unlocking for all the shareholders,” he said.

“We have received a response from the Ministry of Mines, which, however, is yet to be discussed in the board along with our observations,” Misra said.

The Hindustan Zinc board comprise of Priya Agarwal Hebbar – Anil Agarwal’s daughter – who is currently the Chairman; Arun Misra, the CEO; and Navin Agrawal. Other board members include Akhilesh Joshi – former CEO of Hindustan Zinc (2012-2015) ; Kannan Ramamirtham and Pallavi Joshi Bakhru.

Government officials, on-board, include bureaucrats from the Ministry of Mines - Veena Kumari Dermal and Farida M Naik; apart from Joint Secretary and Financial Advisor Ministry of Coal and Ministry of Mines, Nirupama Kotru.

Ministry approval, a must

“Either way, the demerger or any proposal surrounding Hindustan Zinc needs to take place keeping the Mines Ministry on-board,” a Ministry official said. The demerger proposal requires approval of shareholders.

While Anil Agarwal-owned Vedanta has a 64.92 per cent majority-stake in Hindustan Zinc, the Mines Ministry holds around 29.54 per cent.

On Friday, Mines Secretary, VL Kantha Rao said, the Centre had “not agreed to the demerger proposal”. “We have not agreed to the proposal as a shareholder,” he said on the sidelines of a FICCI event here in the city.

Ministry sources said, that they was not convinced of the consultant report provided. There could be further round of discussions and other proposals discussed.

“As of now we are not convinced of the consultant report. We even discussed it across ministries and came up with the opinions,” another Ministry official said.

The official pointed out that Hindustan Zinc was operating “profitably as a single unit”. There was no guarantee that post demerger, different companies will continue to have a similar valuation or be equally profitable. “It is doing well as a single unit. And it is business as usual there. And is profitable company. Why do they need to tinker with it at this moment,” the official pointed out.

Hindustan Zinc continues to be on the Centre’s divestment radar.

This isnt the first time that the Centre has had a run-in with the Hindustan Zinc management. Previously, plans to acquire overseas zinc mines of parent-co Vedanta, by the subsidiary (Hindustan Zinc) in a nearly $3-billion deal was called off following objections by the Ministry.