Vedanta group company Sterlite has favoured a mutually agreed price for buying back the Government's residual stake in aluminium company Balco. For Hindustan Zinc, it has requested adoption of the formula devised by the Securities and Exchange Board of India's (SEBI).
At present, the Government has residual stake of 49 per cent in Balco and 29.53 per cent in Hindustan Zinc. Both the companies were strategically divested by the Government.
A person familiar with the development told
The EGoM had decided to ask Sterlite to send a formal proposal in response to Vedanta Chairman, Mr Anil Agarwal's letter to the Prime Minister on July 4.
Call on valuation
Now this matter will be forwarded to the Department of Disinvestment. First, this will be reviewed by a group of secretaries including the Disinvestment Secretary, the Mines Secretary and officials. Then it will go the Committee of Secretaries and, on its recommendation, the EGoM will take a call on the valuation, he added.
However, he said the entire process was unlikely to be completed by March 31, 2012. In such a situation, the process will not help the Government to bridge the shortfall in disinvestment target. The Government had set a target of Rs 40,000 crore through disinvestment, but managed to get just a little over Rs 1,150 crore.
The basic issue now is valuation. Since Balco is not listed, it is not easy to arrive on a valuation. “We will discuss with the company and financial advisors like SBI Caps before reaching on a mutually agreed price,” he added. The change in the value of net worth, increase in revenue, besides other factors, will be considered before deciding on valuation. The Government has sold 51 per cent of its equity in BALCO for Rs 551.50 crore.
In January 2011, an arbitration panel had allowed the Government to sell its residual 49 per cent stake in Bharat Aluminium Company, or Balco, as it deemed fit. The panel had struck down Sterlite's call option to acquire the balance stake as invalid.
Call option is an agreement that gives the buyer a right to buy some part of an asset at a specified price within a specified time-frame. The original deal gave Sterlite a call option to acquire the balance stake within three years. When Sterlite decided to exercise the call option, differences emerged over valuation of stake and the dispute went into arbitration
There is not much complexity involved in the buy-back of the Government's residual stake in Hindustan Zinc as it is a listed entity.